FULL REPORT
Corporate Sustainability Accounting WHAT CAN AND SHOULD CORPORATIONS BE DOING?
PETER UTTING WITH KELLY O’NEILL
FULL REPORT Corporate Sustainability Accounting WHAT CAN AND SHOULD CORPORATIONS BE DOING?
PETER UTTING WITH KELLY O’NEILL Research and writing by Peter Utting with Kelly O’Neill. Comments and suggestions provided by the Project Team (Ilcheong Yi, Samuel Bruelisauer and Kameni Chaddha) and Advisory Group (Margie Mendell, Mark McElroy, Bill Baue and Sonja Novkovic). Produced by the UNRISD Communications and Outreach Unit, with design and layout by Sergio Sandoval.
Corporate Sustainability Accounting: What Can and Should Corporations Be Doing? is one of the main outputs of phase one of the UNRISD research project Sustainable Development Performance Indicators (SDPI). The project aims to contribute to the measurement and evaluation of the performance of economic entities—both in the for-profit sector and in the social and solidarity economy—in relation to the vision and goals of the 2030 Agenda. The project aims to assess the adequacy of existing methods and data associated with sustainability accounting; expand the scope of sustainability measurement, disclosure and reporting beyond for-profit enterprises to encompass enterprise models in the social and solidarity economy (SSE); and identify and test a set of indicators that can effectively measure impacts, while ensuring that the economic behaviour of enterprises and other organizations contributes to maintaining environmental and social resources at the thresholds required for sustainable development.
UNRISD’s SDPI project (2018-2022) is funded by the Center for Social Value Enhancement Studies, Republic of Korea.
For more information, visit www.unrisd.org/sdpi
The designations employed in this publication and the presentation of material herein do not imply the expression of any opinion whatsoever on the part of UNRISD concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries.
For a list of any errors or omissions found subsequent to printing, please visit www.unrisd.org/sdpi
ISBN 978-92-9085-113-4
November 2020
Copyright © United Nations Research Institute for Social Development (UNRISD) and the Center for Social Value Enhancement Studies. CORPORATE SUSTAINABILITY ACCOUNTING: WHAT CAN AND SHOULD CORPORATIONS BE DOING?
Preface
This report was drafted in 2019. To borrow are key—both for improving the social or a phrase from politics, a week is a long time sustainability performance of corporations, in the field of corporate social responsibility and for assessing progress through disclosure (CSR) and sustainability disclosure. Normally and reporting. this is evident in the steady stream of new standards, reporting guidelines and best The CSR agenda has paid insufficient practices that companies are urged to adopt. attention to the necessary transformation of But periodically a high-profile corporate certain structural conditions that reproduce scandal, disaster or a global crisis will reveal unsustainable development. It has missed the limits—indeed, hypocrisy—of mainstream the big picture, focusing instead on steps efforts to improve corporate sustainability that companies can take to do a bit less disclosure and performance, and will prompt harm in relation, for example, to working a major reassessment. Think Enron, the Rana conditions and environmental protection— Plaza factory collapse, the BP Deepwater incrementalism instead of transformative Horizon oil spill, Volkswagen’s vehicle change. And it has assumed that any initiative emissions scandal, and the global financial associated with improved performance crisis of 2008-2009. represents progress along a sustainable development pathway, ignoring the need to Fast forward to early 2020 and we are now measure progress in relation to sustainability in the midst of a global health crisis, the thresholds and patterns of fair allocation. 1 Paul Polman, interviewed Covid-19 pandemic. As with other crises, by Ethical Corporation on 20 March 2020. this will be a time when many corporations As with the global financial crisis, the present Available at will step up to the plate with initiatives that crisis will likely give rise to calls for a new http://www.ethicalcorp. com/paul-polman- attempt to cushion the blow for employees twenty-first century social contract. Some coronavirus-acid-test- and local communities, or that foster public- leaders in this field are calling on companies stakeholder-capitalism private partnerships that assist governments not only to provide immediate assistance 2 Richard Edelman. and the wider citizenry. In short, CSR will to workers, producers, consumers and local “Covid-19: World Economic Forum likely receive a big shot in the arm, adding communities, but also to be part and parcel and Edelman fill the more content to the ever-expanding portfolio of “a real tipping point on what responsible information void”. 11 1 March 2020. Available at of corporate policies and practices that business should look like” or “to adjust its https://www.edelman. has characterized CSR over three decades. approach and become more strategic and less com/insights/covid- 19-world-economic- But as this report reveals, such a trajectory operational and focus its planning on the forum-and-edelman-fill- leaves unresolved a series of issues that long term”.2 information-void
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Unfortunately this didn’t happen following have disclosure and reporting often focused the global financial crisis and it is unlikely on the issue of whether wages comply with to happen now, unless the focus of attention minimum wage regulations or industry within CSR and sustainability disclosure norms, rather than the living wage? And, shifts towards the set of core issues highlighted as occurred with the global financial crisis, in this report. Fundamentally, they relate to how can we avoid fuelling income inequality, skewed patterns of distribution of resources reflected in extreme CEO-worker pay ratios, and structures of inequality, both vertical (for via a stimulus or bailout agenda that results in example, income and wealth) and horizontal share buy backs and inflated CEO bonuses? (for example, gender and ethnicity); skewed power relations, and hierarchical as opposed In relation to gender equality, under to democratic or participatory governance Covid-19, employees are now urged to work arrangements; and growth and business from home via teleworking. This places models that generate acute environmental in sharp relief the chronic failure of the externalities that threaten both people’s well- CSR agenda to promote multiple forms being and the health of the planet. of support for employees with caregiving responsibilities—responsibilities that explain This report suggests that certain advances in much of the workplace disadvantage that the field of environmental disclosure are now women face in pay and promotion. Given the addressing the perverse relationship between narrow focus on a few weeks of pre- and post- the growth model, or capital accumulation, at natal care, both companies and standard- the enterprise level on the one hand, and the setting organizations have failed to recognize environment on the other. This is evident, for that such responsibilities are, in fact, a long- example, in calls not only for improvements term lifecycle issue. related to resource intensity, but also for “absolute decoupling”. Such developments Regarding corporate taxation, as national are far less apparent in relation to the social health systems struggle under the strain, why and political or governance dimensions of are the tax strategies and lobbying efforts of sustainable development. corporations often centred on reducing levels of corporate taxation or resisting increases in The Covid-19 crisis highlights where or how income and wealth taxes, thereby depriving corporate sustainability disclosure has missed national and local governments of the the mark when it come to the big picture essential fiscal resources needed to maintain issues. Part 2 of this report focuses on five adequate health services and social security? such issue areas: fair remuneration, gender equality, corporate taxation, labour rights Concerning labour rights, as workers around and corporate political influence. the world are laid off, their vulnerability might have been mitigated had their As regards fair remuneration, the current bargaining power not been eroded during crisis has left us wondering why so many recent decades. This has partly been due of those who are putting themselves at risk to the flexibilization of labour markets that in order to provide us with essential goods globalization demanded and corporate and services are paid so poorly. Whether in lobbyists encouraged. Furthermore, the rich or poor countries, millions of people pandemic raises the spectre of subcontracted, have no savings to cushion the blow of part-time and freelance labour, with few if any unemployment. And many cannot afford labour rights, becoming even more pervasive the luxury of social distancing, as they must than before. continue to work outside the home to put food on the table. Why, for so long, has Indeed, as the Covid-19 crisis exposes the there been so much corporate resistance to fragility of global supply chains, and prompts paying workers a decent wage as reflected a sharp decline in carbon emissions and in the concept of a “living wage”? Why pollution, both globalization and the growth
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model it cultivated are being questioned. This, Acknowledgements in turn, should focus attention on one of the main driving forces of globalization—the so- This report benefitted greatly from called neoliberal policies that underpinned participant feedback during several UNRISD it. These are policies that have often been at workshops and conferences held in Geneva the forefront of corporate efforts to influence and Montreal in 2019. In particular, we politics and public policy. thank the advisory team of the UNRISD project on Sustainable Development Perfor This report urges the United Nations to take mance Indicators, including the project a lead in repurposing corporate sustainability coordinator Ilcheong Yi, and Margie accounting for sustainable development. For Mendell, Mark McElroy, Sonia Novkovic too long several UN agencies and programmes and Bill Baue. Comments and insights from have promoted an approach to CSR and Raymond Saner, Kate Ruff, Rob Michalak, sustainability disclosure that is not capable Robert Bloom, Nicolas Zorn, Shahra Razavi, of positioning business as an effective agent Orlando Núñez and representatives from the of change, as demanded by the Sustainable International Union of Food, Agricultural, Development Goals. It is hoped that the Hotel, Restaurant, Catering, Tobacco and research findings, and the UNRISD project Allied Workers’ Associations (IUF) helped of which they are a part, provide useful improve the report. Inputs were also provided pointers regarding key issues, indicators and by Tatiana Krylova and Yuki Mitsuka at the normative targets that should be the focus of Enterprise Branch of the United Nations attention going forward. Conference on Trade and Development (UNCTAD). Financial support for this research was provided by the Center for Social Value Enhancement Studies, Republic Peter Utting of Korea, and UNRISD institutional funds. Managua, Nicaragua Finally, we would like to thank UNRISD staff 10 April 2020 for feedback and other assistance, including UNRISD Director Paul Ladd, Gabriel Salathé-Beaulieu, Samuel Brülisauer, Kameni Chaddha, Alexander Dénis, Katja Hujo, Martina Piras, Matteo Tarasco and David Vergari. The report was edited and produced by the Institute’s Communications and Out reach team: Joannah Caborn Wengler, Jenifer Freedman and Sergio Sandoval.
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Contents
Preface i
Acknowledgements iii
Executive Summary vii
Overview 1
⚫ Part 1: Assessing the State of Play
Introduction 31 Chapter 1 33 A 30-Year Journey Ratcheting up and institutionalization 34 Best practice learning 45 Chapter 2 46 Where Do We Stand? Accounting issues 47 Complexity 47 Comparability 48 Relevance and materiality 48 Reliability and credibility 52 Mainstream responses 55 Digital innovations 56 Chapter 3 58 Thinking Forward Learning from cutting-edge innovations 61 Net Positive 61 The MultiCapital approach 63 r3.0 64 Learning from different enterprise models and varieties of capitalism 66 Linkages 66 Private, multistakeholder and multipurpose companies 66 Cooperatives and other social and solidarity economy enterprises and organizations 67 Varieties of capitalism 67 Learning from social science theory and multidisciplinarity 68 Transdisciplinarity 70 Participation, power relations and the politics of change 71 Concluding Remarks 74
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⚫ Part 2: Indicators and Targets for Transformative Change
Introduction 77
Chapter 4 79 Learning from the Environmental Dimension
Chapter 5 83 Fair Remuneration Introduction 83 Income inequality within the firm 84 CEO-worker pay ratio 85 What might a fair CEO-worker pay ratio target look like? 85 Other dimensions of vertical inequality 87 Living wages 88 What is the “living wage”? 88 Measurement issues 90 Comparing actual wages with the living wage 91 Concluding remarks 93 Chapter 6 94 Gender Equality Introduction 94 Structural dimensions of gender disadvantage in the workplace 96 The gender pay gap 97 Gender diversity 99 Care 100 Beyond maternity and parental leave 101 Transparency as a driver of change 106 Targets 108 Concluding remarks 113 Chapter 7 114 Corporate Taxation Introduction 114 Why tax justice is a key performance issue 115 The tax gap and misallocation of profits 117 Normative and regulatory drivers of tax-related sustainability accounting 119 Concluding remarks 123
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Chapter 8 124 Labour Rights Introduction 124 Sustainability disclosure as if labour rights mattered 125 The importance of disaggregated and time series data 126 Country-by-country and supply chain reporting 128 Public disclosure of suppliers 128 Subcontracting via labour brokers 130 Responsible purchasing practices 132 Concluding remarks 134 Chapter 9 135 Corporate Political Influence Introduction 135 What CPI is, and why it matters 136 The structural underpinnings of corporate power 139 The rise of CPI as a key performance issue 140 Ongoing issues and gaps 144 Beyond transparency and integrity 147 Concluding remarks 150 Summing Up 151 Raising the bar 151 Main findings: Issues and indicators 152 Main findings: Transparency and granular disclosure 152 Main findings: Normative goals, targets or target ranges 153 Future work 154 Acronyms 155 List of boxes, figures, tables 156 References 157 Image credits 176 Annexes 177 Annex 1. European Commission Guidance on Non-Financial Reporting 177 Annex 2. SASB Accounting Criteria and Universe of Sustainability Issues 178 Annex 3. Oxfam’s Criteria for Gauging Strong and Weak Performance 179 Annex 4. Mainstream Innovations to Improve Sustainability Accounting 181 Annex 5. The Potential and Limits of Digital Innovations 185 Annex 6. Learning from Social Science Theory and Multidisciplinarity 186 Annex 7. World Federation of Exchanges (WFE) ESG Metrics and Indicators 191 Annex 8. Relevant Standards Adopted by Selected Standard-Setting Organizations: World Federation of Exchanges (WFE), Impact Reporting and Investment Standards (IRIS), 192 Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB) Annex 9. What Counts As Wages? 199 Annex 10. Companies with the Highest Rate of Female Representation at Board and 200 Executive Levels Annex 11. Sustainability Accounting Terminology 201 vi8 CORPORATE SUSTAINABILITY ACCOUNTING: WHAT CAN AND SHOULD CORPORATIONS BE DOING?
Executive Summary
The expanding economic power and global the perspective of sustainable development impact of transnational corporations in the and the “transformational vision” of the late twentieth century gave rise to a movement Sustainable Development Goals (SDGs). to both rein in negative impacts associated with the environmental, social and governance With the aim of spurring discussion about how (ESG) dimensions of corporate performance to repurpose the measurement of corporate and reinforce or restore the legitimacy of large sustainability performance for “transformative corporations. Over the past three decades, change”, the report presents a four-pronged this growing movement has resulted in a vast argument. First, progress towards generating set of standards and compliance practices and reproducing an economic system that is optimistically packaged as the pathway to conducive to sustainable development through sustainable development through gradual corporate responsibility (CR) will depend not improvements in corporate sustainability only on progress associated with the perfor performance. mance issues and indicators that tend to be the main focus of conventional reporting. Such This report assesses not only whether the progress crucially depends on addressing a set application of existing indicators demonstrates of issues and corresponding indicators that enhanced performance but also whether the relate directly to the structural underpinnings indicators themselves are fit for purpose. of (un)sustainable development. These issue It was commissioned by UNRISD as part areas often constitute blind spots within the of a four-year inquiry into the ways and field of corporate sustainability reporting. means of crafting sustainable development indicators that can adequately measure the Second, while in recent years there has been performance of both for-profit companies and notable progress in terms of standard setting, the enterprises and organizations that make measurement and disclosure related to the up the social and solidarity economy (SSE). environmental dimension of corporate Here we address the corporate dimension of sustainability performance, the same is not sustainability accounting. true of the social dimension. Important gaps remain, particularly in relation to issue areas The analysis reveals that conventional sustain associated with inequality, power relations and ability disclosure and reporting undertaken distributive justice. by transnational corporations and other large companies can neither act as an effective tool Third, conventional disclosure focuses to for recrafting corporate behaviour, from the a large extent on qualitative indicators, perspective of sustainable development, nor notably elements of a management system allow management and other stakeholders deemed necessary for enhanced sustainability to assess adequately whether a company is performance. Such indicators often serve progressing along a sustainable development as a proxy for concrete improvements in pathway. Further, the report considers ways performance. Further, data are frequently in which existing performance metrics and presented out of context, that is, disconnected indicators might be adapted, complemented or from certain background conditions, related redesigned to facilitate corporate sustainability variables and normative standards which, accounting. Robust accounting should serve when added to the equation, enable users to both measure and promote progress from of data to gain a far clearer picture regarding
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sustainability performance. Far more attention Further, sustainable development is more needs to be directed to quantitative metrics than simply the simultaneous consideration and indicators that measure actual levels and in time and space of economic, social, variations of impact over time. environmental and governance dimensions of development. Integrated development—and Fourth, progress associated with transformative integrated reporting—also requires recognizing change also involves a journey towards certain and addressing fundamental contradictions and thresholds and equitable patterns of resource dilemmas associated with these dimensions. allocation compatible with distributive justice. It is these thresholds and “fair allocations” that The report argues that while an incrementalist define sustainable development when under and “do less harm” approach may be conducive stood in terms of intra- and intergenerational to partial forms of environmental and social equity, thriving and regeneration, and not protection or aspects of good governance, it tells simply incremental adjustments to reduce us very little about the type of transformative negative impacts associated with environ change needed for a sustainable future. The mental, social and governance performance in concept of “transformative change” used in selected issue areas.3 this report refers to: (i) patterns of change that modify the structures that reproduce injustice ⚫ Part 1 of the report, comprising three and inequality (or enable justice and equality); chapters, begins by tracing the evolution and and (ii) a journey towards concrete goals and institutionalization of standard setting and targets in consonance with sustainability disclosure associated with ESG performance thresholds and fair allocations of resources. over three decades. This review reveals (Chapter 1) the constantly expanding scope of Not only conventional corporate sustainability issue areas and indicators seen as material by disclosure, but also many contemporary innova corporate managers and other stakeholders, as tions within the field, run the risk of bypassing well as frequent improvements in the quality of issues, indicators and targets that are key from measurement, disclosure and reporting. It also the perspective of transformative change. Part assesses (Chapter 2) where we stand currently 1 ends by considering four avenues of inquiry in terms of indicators and reporting practices that provide insight into the fundamental that allow stakeholders to measure and assess factors and conditions that explain and resolve corporate sustainability performance. unsustainable development. In so doing, they provide pointers to key “transformative” issue The problematic nature of contemporary ESG areas, indicators and targets that are often assessment is widely recognized by managers, marginalized within corporate sustainability 3 This second aspect standard setters and users alike. Much of the disclosure and assessment. These include: of thresholds and focus is on concerns associated with basic (i) cutting-edge innovations associated with allocations draws on the work of Mark accounting principles such as the proliferation ambitious target setting; (ii) learning from McElroy and Bill Baue of standards, complexity, user-friendliness, other business or enterprise models and who also form part of materiality4, reliability, credibility and lack of varieties of capitalism that appear to be the UNRISD project team (McElroy 2019; comparability of existing indicators. Several more conducive to inclusive and sustainable Baue 2019; see also recent initiatives are reviewed that have been, or development; (iii) replicating in the social Thomas and McElroy 2016; Thurm et al. are being, introduced to deal with these issues. arena the science-based approach that has 2018). gained currency in relation to environmental 4 In the context In Chapter 3 we argue that many such disclosure, by drawing on social science of sustainability accounting, materiality developments are unlikely to get us to where theory and multiple disciplinary perspectives refers to issues that we need to be to accurately assess corporate or schools of thought; and (iv) learning from are of importance sustainability performance. Part of the pro different worldviews and the perspectives of to management and other stakeholders blem lies in a narrow interpretation of what not only conventional stakeholders but also from the perspective counts as progress towards sustainability. This other “rightsholders”.5 of assessing risks, opportunities and is often equated with incremental reductions impacts. in “harms” associated with environmental and ⚫ Part 2 of the report opens (Chapter 4) by 5 See Thurm et al. 2018. social impacts or governance arrangements. briefly identifying several recent developments
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related to environmental disclosure that are setting organizations and others replicable in relation to social dimensions of involved in promoting ESG disclosure; sustainability performance. These include a • methodological considerations; and more fundamental questioning of conventional • possible normative targets for growth paths, extending the focus of per assessing progress in terms of formance assessment beyond the firm to the sustainable development. supply chain, emphasizing not only qualitative but also quantitative indicators, and setting Amidst increasingly vociferous calls for a ma more ambitious performance targets. jor reassessment of corporate sustainability disclosure and accounting, this report provides Chapters 5 through 9 highlight five issue areas insights into issues, indicators and targets that central for measuring performance and progress do not yet receive the attention they warrant. related to structural and systemic change. These And in a context where the SDGs and the areas are not meant to be exhaustive; rather, climate challenge have raised the bar in terms they illustrate key issues, indicators, metrics and of urgency and action, it is essential that the targets related to inequality, distributive justice type of UN-led inquiry for which this report and power relations. The first three are: was prepared continues. Considerable work (i) fair remuneration, comprising still needs to be done to refine methods, both intra-firm (in)equality assessed indicators and normative goals, and to through the lens of the CEO- demonstrate why they are necessary for worker pay ratio and the payment sustainable development. of a living wage; (ii) gender equality, comprising While the five issue areas are all relevant and gender balance within corporate material from the perspective of corporate sus structures, the gender pay gap, and tainability assessment and the circumstances care support and responsibility— of large for-profit corporations, the targets not only in relation to pre-natal may involve benchmarks that are aspirational and post-natal care but throughout and long term. Indeed, as some companies various phases of the lifecycle that are now realizing when accounting fully for impact the situation of women in their carbon emissions throughout the global paid work; and value chain, achieving a required target—such (iii) the distribution of corporate as net zero emissions by a certain year—may be income via taxation. impossible given current production methods, technologies, governance arrangements Two additional issue areas concern the and commercial logic. But such metrics and question of skewed power relations and how to indicators reveal clearly the scope of the assess progress related to the reconfiguration challenge. They indicate a company’s true of power relations in ways amenable to position along the pathway to sustainable sustainable development. These areas are: development, and whether progress towards (iv) labour rights, particularly the target is meaningful. This information collective bargaining; and is vital for any company that adheres to the (v) corporate political influence ethos of corporate social responsibility and associated with political is serious about sustainable development. It spending, lobbying and the is also essential for the multiple stakeholders “revolving door”. engaged in the movement for greater corporate accountability. And unless issues related to The discussion of each issue considers the inequality, distributive justice and power following aspects: relations are positioned front and centre • structural implications; within the field of corporate sustainability • the limits of conventional disclosure reporting and performance, current efforts and reporting; to engage corporations as active partners in • quantitative indicators that should be the SDG process will do little to realize the considered by corporations, standard- transformational vision of the 2030 Agenda.
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Corporate Sustainability Accounting What Can and Should Corporations Be Doing?
Overview
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associated with production and consumption patterns and the dominant growth model. In Towards relation to social and governance dimensions, st however, structural conditions—for example, 21 Century skewed patterns of income and wealth dis tribution, and gender and power relations— are often ignored. Furthermore, conventional Sustainability approaches tend to obfuscate important con textual conditions that are needed to effectively assess progress. These include the use of sus Accounting? tainability norms or targets against which to measure progress. Without such context, it is In recent decades big business has become impossible to know where a company is truly an important player in efforts to promote sus positioned on a sustainability pathway. tainable development. Measuring and assessing such efforts has been the remit of what is How, then, might corporate sustainability dis now a vast industry comprised of corporate closure and reporting be repurposed to achieve sustainability managers and standard-setting these ends and, in so doing, measure and organizations, as well as monitoring, certification promote progress from the perspective of the and rating agencies. This industry is currently “transformational vision” of the SDGs? at a watershed. It had been assumed that corporate social responsibility (CSR), and so- called triple-bottom-line or ESG (environmental, What the Research Demonstrates social and governance) disclosure, would The report highlights: position companies on a pathway to sustainable major achievements and challenges as development through gradual improvements seen from the perspective of some of the in corporate sustainability performance. This key players within the field of corporate optimistic view is now being questioned. sustainability disclosure and reporting; the inherent limits of mainstream Many involved in sustainability disclosure approaches to sustainability accounting and assessment have long recognized the from the perspective of transformative mismatch between reporting practices and basic change; accounting principles that foster comparability, issues, indicators and targets that user-friendliness, relevance, credibility and so need to be addressed if corporate forth. A constant stream of adjustments and sustainability performance and innovations in reporting guidance and practice disclosure is to contribute in any have sought to address this issue. But this is only meaningful way to realizing the SDGs. one part of the challenge. Today’s global crises— financial, climate and health—as well as the With the aim of spurring discussion about how Sustainable Development Goals (SDGs) have to repurpose the measurement and reporting raised the bar in terms of expectations regarding of corporate sustainability performance for corporate sustainability performance. They have transformative change, the report presents a also highlighted the need for sustainability policy four-pronged argument. and practices that address not only the symptoms of unsustainable development—or incremental First, generating and reproducing an economic reductions in harmful impacts—but also the system that is conducive to sustainable de underlying causes. These are associated with velopment through corporate responsibility structural conditions that reproduce inequality, will depend not only on making progress on vulnerability and planetary degradation. In the performance issues and indicators that relation to the environmental dimension of are currently the main focus of conventional sustainable development, attention is focusing, reporting. Such progress also depends crucially at least to some extent, on structural conditions on addressing a set of issues and corresponding
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indicators that relate directly to the structural accounting principles, as well as an “elephant underpinnings of (un)sustainable development. in the room syndrome” whereby a number of Particularly important are conditions associated issue areas and indicators that are absolutely with distributive (in)justice, inequality and skewed key for assessing progress towards sustainable power relations, which are often neglected within development are neglected. the field of corporate sustainability reporting. Part 2 delves into the specifics of disclosure from Second, while corporate environmental per the perspective of “transformative change” (see formance is often poor, at least there have been Box O.1) by focusing on five key performance some notable innovations and improvements in issues—fair remuneration, gender equality, cor environmental disclosure with the emergence of porate taxation, labour rights, and corporate more meaningful indicators, as well as science-based political influence. targets. Such improvements need to be replicated in other dimensions of sustainability related to social Box O.1. What is transformative change? development and democratic governance.
As the international community takes stock of Third, conventional disclosure focuses heavily the magnitude of the social and environmental on qualitative indicators, notably elements of challenge facing humanity and the planet, terms a management system deemed necessary for like transformational or transformative change have gained currency. But what exactly does enhanced sustainability performance. Such “transformative” mean? For some, it is simply indicators often serve as a proxy for concrete a label used to embellish piecemeal reforms improvements in performance. Far more atten or incremental improvements in performance. tion needs to be focused on quantitative metrics In the report, transformative change refers to structural changes that are necessary to and indicators that measure actual levels and transform entrenched patterns of production variations of impact. Also key are time series and consumption, as well as social relations and data that capture trends, as opposed to annual governance arrangements, that underpin social exclusion, inequality and planetary destruction. snapshots, and more granular reporting that Without such changes, neither countries nor can reveal significant variations in performance corporations can claim to be on a sustainable within corporate structures and value chains. development pathway.
The UNRISD Flagship Report, Policy Innovations Fourth, progress associated with transformative for Transformative Change, showed how public change involves not only addressing the structural policies intended to promote social development determinants of unsustainable development but often focus on social protection—for example, safety nets and social floors such as minimum also a journey towards certain thresholds and wage guarantees and basic health services patterns of fair resource allocation. It is these (UNRISD 2016). Similarly, environmental policy thresholds and “fair allocations” that define often focuses on doing a bit less environmental harm, or a bit more conservation. The focus, then, sustainable development when understood in is often on fairly minimalist aspects of decent work, terms of intra- and intergenerational equity, “targeting the poor” or environmental protection, thriving and regeneration, and not simply in rather than a more ambitious agenda to promote simultaneously human well-being, intergenerational terms of incremental reductions in negative equity and planetary regeneration. Yet it is these impacts. Unless a company sets a target that objectives that define the concept of sustainable reflects a sustainability norm, neither its development. 6 This second aspect management nor other stakeholders can know More often than not, policy reforms tackle the of thresholds and where that company is positioned in relation to allocations draws symptoms rather than the causes of unsustainable 6 on the work of Mark sustainable development. development, leaving the structures that generate McElroy and Bill the problems in the first place largely intact. Yet Baue, who are also it is the more comprehensive and ambitious members of the The report is divided in two parts. Part 1 assesses approach that is required. A similar argument can UNRISD project team. the current state of play. It tracks the impressive be made both for corporations trying to improve See McElroy 2019 their sustainability performance, and for much and Baue 2019; expansion and ratcheting up of sustainability of the standards regime promoting corporate see also Thomas indicators over three decades, but also identifies and McElroy 2016, sustainability disclosure and reporting. Thurm et al. 2018 and ongoing major weaknesses in reporting. These Raworth 2017. relate to their failure to conform to basic
2 CORPORATE SUSTAINABILITY ACCOUNTING: WHAT CAN AND SHOULD CORPORATIONS BE DOING?
PART 1 Assessing the State of Play
Part 1 of the report takes stock of developments and ongoing challenges related to corporate social and environmental responsibility and sustainability disclosure. Divided into three chapters, it begins by looking at how the field of ESG disclosure has evolved during the past decades.
It then identifies major challenges confronting corporate sustainability accounting and points to the need to think outside the box of mainstream innovations and dynamics that are constantly tweaking corporate sustainability accounting practices. Four avenues of inquiry are proposed for charting a path forward.
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CHAPTER 1 CHAPTER 2 A 30-Year Where Do Journey We Stand?
Chapter 1 identifies key trends and develop This overview of the evolution of corporate ments—from the early phase of “cosmetic” sustainability disclosure and reporting indicates disclosure to the significant ratcheting up of a significant intensification of disclosure activity standards, indicators and guidelines, as well in the name of sustainability. It is likewise clear as the development of a dense institutional that many of the key problems in sustainability ecosystem that promotes, supports and regulates reporting identified years ago stubbornly remain. disclosure and reporting. Five areas of progress They include: are particularly evident. • a level of complexity that confuses, • The early tendency to pick and choose distracts from measuring impact and what to measure and disclose has given defies easy comprehension; way to a fairly comprehensive range of • a lack of data comparability and standards. standardization to support useful • A more encompassing approach is evaluation; evident in the fact that additional • imprecise materiality determination industry sectors and types of business leading to low-quality disclosure and have coalesced under the corporate uninformed stakeholders; and responsibility umbrella. • reliability and credibility problems • Reporting and certification guidelines undermining confidence in the have been ratcheted up. sustainability reporting process itself. • Third-party verification and assurance is now commonplace. Chapter 2 of the report takes a closer look at • The institutionalization of corporate these accounting issues and describes several sustainability also involves rating or mainstream responses to enhance the quality of ranking the sustainability performance disclosure, including attempts to align reporting of companies and their comparative frameworks, simplify complex disclosure evaluation. requirements, minimize cherry picking via “multicapital” integrated reporting7, place a The evolution of disclosure and reporting sug value on impacts via monetization, and better gests that there has been a significant change in determine what is relevant and material from corporate discourse and policy in recent decades. the perspective of sustainable development Over time, attitudes have shifted from outright and the SDGs. Several recent initiatives are denial of responsibility, through piecemeal self- presented in Box O.2. regulation associated with bolstering corporate legitimacy and risk and reputation management, to a more comprehensive approach that is gar nering considerable buy-in from transnational 7 See IIRC 2013, Thomas and McElroy 2016. corporations and other companies.
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CHAPTER 3 Box O.2. Some recent initiatives to improve corporate sustainability accounting Thinking 2015 Science Based Targets initiative (SBTi): Showcases companies setting science- based emission reduction targets and promotes best practices. Forward 2015 SDG Compass: Guides firms to align their business strategies with relevant SDGs and measure their impacts. “ [The Triple Bottom Line] wasn’t 2016 Net Positive Project: Develops guidelines to enable companies designed to be just an accounting to transition from a “do no harm” tool. It was supposed to provoke approach to one that ensures a positive societal and environmental footprint. deeper thinking about capitalism and its future, but many early 2016 GRI Global Reporting Standards: Revision of GRI standards aimed at adopters understood the concept improving reporting relevancy, clarifying as a balancing act, adopting a reporting requirements and content, and simplifying language. trade-off mentality.
2017 Business Reporting on the SDGs Action John Elkington (2018) Platform: Promotes alignment of reporting practices, and measurement and reporting of company impacts on Can past and present innovations place cor the SDGs. porate sustainability performance accounting on a track that is fit for the purpose of assessing 2017 European Commission Guidance on progress towards sustainable development? The Non-Financial Reporting: Guidance for companies that must comply with the report suggests that much still needs to change 2014 EU Directive on non-financial if the corporate responsibility movement is to reporting. effectively contribute to sustainable development 2018 r3.0: Seeks to close gaps between and the realization of the 2030 Agenda. Pursuing current practice and sustainability the trajectory of incremental change centred norms through a series of Blueprints on a “do less harm” approach runs the risk of and a Global Thresholds and Allocations Council. bypassing issues, indicators and targets that are key from the perspective of transformative 2018 World Benchmarking Alliance: Develops change. These are key because they relate to publicly available and free corporate the structures that reproduce and reinforce benchmarks of companies’ contributions to the SDGs. unsustainable and exclusionary patterns of development, including patterns of inequality 2018 UNCTAD’s Guidance on Core Indicators: and skewed power relations, as well as forms of Recommends 33 indicators aimed at harmonizing disclosure and aligning growth and capital accumulation that generate company reporting with the SDGs. social and environmental “externalities”. Such issues need to be put at the centre of the 2019 IRIS+ system: Provides investors and companies with a common corporate sustainability agenda if we are to understanding of how to measure and develop enterprise and finance models geared manage their impact, as well as how to more explicitly towards human well-being and improve that impact over time. planetary health.
To chart a path forward, it is useful to think outside the box of mainstream innovations and dynamics that are constantly tweaking corporate sustainability accounting practices. Four avenues of inquiry are particularly insightful and worth pursuing.
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• A set of cutting-edge innovations • Learning from the perspectives not associated with integrated reporting only of conventional stakeholders but and ambitious target setting. also of social actors who are impacted • Learning from other varieties of directly or indirectly by corporate capitalism—for example the “Nordic” activities but may have quite different model, as well as other business or concerns, preferences and worldviews. enterprise models—such as B Corps, cooperatives and other social and These avenues can provide important insights solidarity economy entities and into performance issues, indicators and targets organizations, that appear to be more that are key from the perspective of sustainable conducive to inclusive and sustainable development and transformative change. It development. is thus of particular concern for corporate • Replicating in the social arena the sustainability accounting that they are often science-based approach that has gained neglected within current disclosure and re currency in relation to environmental porting practices and processes of materiality disclosure, by learning from social determination (McElroy 2019). science theory and multiple disci plinary perspectives (see Box O.3).
Box O.3. What does social science theory tell us?
Just as climate science is informing environmental performance standards and target setting, social science should be informing other dimensions of sustainability. Theoretical and analytical insights associated with particular academic subdisciplines and schools of thought within social science can provide important pointers as to the structural causes of unsustainable development, as well as the structural transformations that are needed to effectively position business on a sustainable development pathway. From there it is possible to draw out implications for corporate sustainability performance disclosure in terms of key issue areas, indicators and normative targets. Furthermore, this type of analysis suggests that the portfolio of key performance issues is not overwhelmingly broad; rather, a fairly concise set emerges. Yet it is precisely these issues that often fly under the radar within corporate sustainability disclosure. To illustrate the connections, the report highlights ecological economics, the capabilities approach, political philosophy/sociology, systems dynamics, and institutional economics—as well as the two bodies of thought presented below by way of example: heterodox economics and feminist theories.
Heterodox economics, particularly strands that emphasize the need for redistribution. The work of Thomas Piketty (2014), for example, highlights the crucial role that inequality plays in unsustainable development, as well as the acceleration of inequalities related to (i) income and wealth disparities within society in general and corporations in particular, and (ii) the functional distribution of income—that is, the ratio of profits to wages. Within corporate sustainability accounting, this calls attention to CEO-worker pay differentials; labour productivity versus wage trends; profit shifting; distribution of value among different actors and sectors in the value chain; concentration or market share; long-term versus short-term planning horizons and incentives; workplace democracy, and trade union organization. Attention to different varieties of capitalism and historical periods in the political economy of capitalism can also provide pointers as to normative targets related to fair allocations.
Feminist economics and feminist philosophy highlight how women’s role in social reproduction and unpaid care work is a key enabling condition for the market economy and underpins women’s subordination.* Cultural traits and power relations associated with patriarchy foster discrimination in pay and promotion, and abusive practices in the workplace. The demands and time use associated with care, in turn, reinforce women’s subordination in the workplace, as evidenced in their positioning in lower paid, lower quality jobs and their underrepresentation in management positions. From the perspective of corporate sustainability disclosure, this points to the need to pay far more attention to care as an impediment to decent work, and to indicators that capture the structural conditions that underpin women’s disadvantage in the workplace and career structures, notably segmented labour roles and the gender pay gap. It also points to the key role of women’s collective action through collective bargaining and other mechanisms as a means to women’s economic and political empowerment.
* See, for example, Fraser 2012, Molyneux and Razavi 2002 and UNRISD 2005.
6 CORPORATE SUSTAINABILITY ACCOUNTING: WHAT CAN AND SHOULD CORPORATIONS BE DOING?
PART 2 Indicators and Targets for Transformative Change
ESG does not,“ by nature, carry a true sustainability gene. A company may rate very highly on an ESG score, but to say this company is an excellent sustainability performer is a very fundamentally different statement. [A] company [should be] positioned to prosper for the long term in a way that respects limits, thresholds, and norms that are externally defined, not simply defined by peer group comparison or internal targets and goals. GRI co-founder Allen White, cited in Baue and Thurm (2018)
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What might disclosure for transformative time, via trend analysis, or within corporate change look like? The report makes the case structures, the value chain and jurisdictions for a reconfiguration of key performance where a company operates. Such variations issues, where areas of transformative impact require more granular disclosure because they associated with distributive justice, equality can be masked by the presentation of aggregate and democratic governance receive higher pri data for the company as a whole (see Box O.4). ority. This will involve raising the bar above minimalist disclosure or the low-hanging fruit— moving, for example: • beyond compliance with minimum Box O.4. Granularity wage standards to measuring how equitable or skewed the distribution Corporate sustainability reports often of income is within the enterprise; present company- or group-wide data, • beyond equal pay for equal work to for example, on the gender pay gap, corporate income tax, or collective addressing the gender pay gap, as bargaining coverage. Presentation of well as its key determinants related to aggregated data, however, may mask the gender (im)balance in different wide variations in performance within the occupational categories and (lack of) structure of the corporation. The issue of both granularity and transparency support for caregiving; also extends to areas of the value chain • beyond the amount of corporate taxes that may not be controlled directly by the paid, to focusing on the size of the tax corporation, but still fall within its sphere of influence: suppliers, distributors and gap (effective tax rate as a percentage consumers. of the statutory rate) and the extent of profit shifting; Regarding collective bargaining coverage, PUMA, for example, provides • beyond occupational health and safety, a breakdown by country and region or working conditions, to addressing where its top suppliers are located. As labour rights, notably collective the company itself notes, the extreme bargaining coverage and trade union variations reveal geographical areas where it needs to focus efforts to density; and enhance performance related to labour • beyond qualitative statements of rights.* principle related to corporate political Similarly, company-wide data indicating spending and lobbying to providing a reasonable gender balance may mask quantitative data on multiple forms the fact that women employees are of political influence. concentrated in lower paid, lower quality jobs. Data related to gender balance and the gender pay gap are far more useful Context-based accounting is also critical at this when also disaggregated by occupational juncture. The term “context-based” applies category. specifically to the need to assess performance Particularly problematic are company- in relation to thresholds and targets, notably wide data on taxation and profits that those associated with carrying capacity can mask the scale of profit shifting to and sustainability norms related to carbon low-tax jurisdictions. Publicly disclosed 8 country-by-country reporting that also emissions and water use. The problem of “de- includes data related to revenues, assets contextualization” in sustainability reporting, and employment, is required in order to however, is broader. Failing to make the gauge whether taxation is aligned with connections between one indicator and another real economic activity.
8 related variable can provide a misleading picture. This is the case for the * PUMA. 2016. Momentum. Business and Sustainability Context Contextualization also refers to the need to Sustainability Report. Accessed 30 September Principle introduced by be able to detect, where they exist, significant 2019. http://report2016.puma-annual-report. the Global Reporting com/en/company-overview/sustainability/ Initiative in 2002. variations in performance, whether through
8 CORPORATE SUSTAINABILITY ACCOUNTING: WHAT CAN AND SHOULD CORPORATIONS BE DOING?
CHAPTER 4 Learning from the Environmental Dimension
While the environmental performance of large services they rely on—and, more significantly, corporations generally leaves much to be desired, Scope 3—emissions associated with suppliers, there have, nevertheless, been some significant distributors and consumers, which often account Organizations“ developments in relation to guidelines for for the vast bulk of all emissions associated with a should describe environmental disclosure. Four developments, particular product or service. their key in particular, provide pointers for needed im climate-related provements in aspects of accounting related to Third, companies engaged in environmental targets… social and governance dimensions of sustainable accounting have generally aimed to reduce levels including the development. of harm without any reference to meaningful following: longer term quantitative targets. In this way First, efforts are under way to address what, until corporations could project an image of responsible whether the recently, was a blind spot within environmental environmental action without ever assessing target is reporting—namely, the tendency to focus on whether that action was meaningful from the absolute or metrics associated with resource or emissions perspective of sustainable development. Today, intensity based, intensity rather than absolute reductions in companies are being urged to assess progress in time frames over resource use, waste and emissions. Whereas a relation to time-bound science-based targets. which the target focus on resource intensity diverts the gaze from applies, base structures of production and consumption that Fourth, cutting-edge approaches to environmen year from which fuel planetary degradation, a focus on “absolute tal performance accounting have transformed progress is decoupling” redirects attention to structural the process of materiality determination. It is measured, and change (Jackson 2009). no longer dependent simply on the opinions, key performance preferences, priorities and decision-making indicators Second, the leap forward in environmental power of management and selected stakeholders used to assess accounting is reflected in the shift from a focus (such as standard-setting and certification on performance within the sphere of activities agencies). Rather, it is increasingly informed by progress against directly controlled by the company in question science, with scientific evidence and analysis targets. towards the broader sphere of influence determining not only key performance issues associated with the global value chain. Regarding and indicators but also medium- and long-term Task Force on Climate-related greenhouse gas emissions, corporations are now targets. As discussed in Chapters 5 through Financial Disclosures being called upon to report not only on Scope 1 9 in the report, these four innovations in (2017) emissions related to the direct operations of the environmental accounting need to be applied to facilities they own, but also Scope 2—the energy social and governance dimensions.
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CHAPTER 5 Fair Remuneration
Since the turn of the millennium, the concern typical workers, and that CEO pay factors in of the international development community the multiple sources of income that make up for social development has broadened beyond the CEO remuneration package. In cases where issues such as health, education, poverty and the remuneration of the median employee social exclusion, and now includes income and is not particularly representative of that of wealth inequality. More recently, the SDGs, non-supervisory workers, it would be more through SDG 10 in particular, have further appropriate to compare CEO remuneration to reinforced the notion that combating vertical the median of that of non-supervisory workers inequality in the distribution of economic or the lowest income quartile.9 resources must figure centrally in efforts to promote sustainable development. Table O.1. CEO pay to average income* ratio (Selected countries, 2015-2016) What can corporations do to effectively measure sustainability performance related to income South Africa 541 inequality within the firm? This requires going India 483 beyond conventional metrics associated with US 299 unequal pay for equal work, or indicators that UK 229 compare wage levels to the minimum wage or Canada 203 industry norms. Additionally, it is important to Switzerland 179 measure and assess “fair remuneration” along two Germany 176 dimensions: the gap between highest and lowest Spain 172 paid employees within the corporation, and how Netherlands 172 wage levels compare to the “living wage”. Norway 101 Denmark 82 As regards intra-firm inequality, the CEO- Sweden 75 employee pay ratio is a convenient indicator. Finland 61 While standard-setting organizations are giving Hong Kong 66 greater attention to such disclosure, there are Malaysia 66 9 For methodological considerable variations in the methodology Singapore 65 guidance see Sabadish Japan 62 and Mishel 2013 and metrics used. Such inconsistencies need to and the work of the Source: Based on Lu and Melin 2016. Economic Policy be addressed to ensure, for example, that the * “average income” refers to per capita gross domestic Institute. reference wage reflects the prevailing wages of product adjusted for purchasing power parity.
10 CORPORATE SUSTAINABILITY ACCOUNTING: WHAT CAN AND SHOULD CORPORATIONS BE DOING?
What might be a fair CEO-worker pay ratio? While disclosure related to wage levels is Various reference points could be adopted. commonplace within corporate sustainability These include varieties of capitalism or enterprise reporting, the information provided often tells models associated with equity and social in us little about the adequacy of wages from the clusion, such as the Nordic countries (see Table perspective of sustainable development. The O.1) or so-called B Corps and large cooperatives. annual percentage change in wage levels, com There are progressive public policy measures parisons with the minimum wage or industry and proposals in the United States that suggest norms themselves can be rather meaningless. a threshold of about 50 to 1, but from other Wage data need to be contextualized in relation vantage points this still seems excessive. From to a threshold that is indicative of an adequate the more ambitious perspective of distributive standard of living, or in relation to a company’s justice associated with sustainable development economic performance. Other key performance and transformative change, a ratio in the range indicators related to fair remuneration could of 10-30 to 1 might be considered fair. include real, as opposed to nominal, wage trends and comparison of wage trends with those of profits and labour productivity. The Living Wage The living wage is a convenient reference point for gauging a company’s contribution to sustainable development in relation to fair remuneration. The concept refers to wage levels that allow a full-time worker, working normal [D]ata show that“ although hours, to provide for his or her family via a wage the average worker in FLA that covers basic food, housing, transportation, affiliate factories in Vietnam health, education and some other costs, as well as earns more than double the a small percentage for discretionary expenditure minimum wage, a worker and savings. Calculations of living wages are would need a pay increase site specific—that is, they refer to geographical of almost 25 percent to areas (such as countries, provinces, urban/rural adequately provide for areas) where costs of living are fairly similar. themselves and their family Furthermore, they must be periodically adjusted according to the Global Living to factor in price changes.10 Wage Coalition benchmark. Those workers who earn Despite having a long pedigree, the concept an adequate wage can do has remained under the radar within labour so only through long hours market policy, international labour standards and excessive days of work and corporate sustainability accounting. While without rest, in clear violation methods for calculating the living wage vary of international standards. and need to be harmonized, the comparison of Fair Labor Association (FLA) (2019) actual wages with living wages has highlighted the inadequacy of minimum wage compliance 10 For definitions of the as a sustainability indicator. It also reveals that living wage and how it in many countries and supply chains, it is only should be calculated, see Anker and Anker through excessive overtime that workers can earn 2017 and Asia Floor enough to meet basic needs. Wage Alliance 2017.
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Figure O.1. Minimum, living and actual wages per month, USD equivalent* (Selected countries, 2020)
4,029 1 Minimum wage 4,000 2 Living wage: Individual 3 Living wage: Standard family ** 4 Living wage: Typical family ** 5 Wage: Low-skilled worker 6 Wage: Medium-skilled worker 7 Wage: High-skilled worker
* The Wage Indicator Foundation presents both a low and high 3,000 estimate for living and actual wages. The data reported here correspond to the low estimate. 2,678
** The “standard” family and “typical” family vary in number of children and hours of paid employment. For definitions, see link in figure source. 2,065 1,963 2,000 1,871 1,893
1,189
1,000 1,000
504 452 384 295 248 168 188
Mexico 1 2 3 4 5 6 7 Germany 1 2 3 4 5 6 7
Source: Based on data from the WageIndicator Foundation. Wages in Context. https://wageindicator.org/salary/wages-in-context. Accessed 10 August 2020.
Data for numerous countries presented by the minimum wage approximates the living the WageIndicator Foundation compare wage for a standard family and even low-skilled the living wage with the minimum wage as workers earn above the living wage. well as with the prevailing wage of different types of worker categorized by skill level (low, Achieving progress related to fair remuneration medium and high). Companies could adapt and living wages often requires a sectoral or re the WageIndicator method by comparing gional approach so that responsive companies do the median wage of each quartile of wage/ not lose competitive advantage. It also requires far salary earners with the living wage. Another greater attention to labour rights and enhancing useful indicator would be the percentage of the capacity of workers to bargain for improved employees within a company that earn below pay and conditions. the living wage. From an accounting perspective, where consis Figure O.1 shows how data on the minimum tency and comparability are important principles, wage, the living wage and the actual wage of variations in methodology suggest the need for different skill categories of worker can reveal different organizations and stakeholders to come significant variations in wage relationships together to harmonize methods. Given its long by country. In the case of Mexico, low-skilled association with the principle of a living wage,11 workers earn just above the minimum wage but its global regulatory and normative stature, and neither they nor medium-skilled workers earn its convening power, the International Labour anywhere near the living wage for a family. This Organization would be well placed to play a 11 See Reynaud 2017. contrasts with the situation in Germany where facilitation role.
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CHAPTER 6 Gender Equality
Gender inequality“ in unpaid care work is Box O.5. Stark facts about gender inequality in paid employment the missing link in the analysis of gender gaps • Labour force participation rate for women in labour outcomes, aged 25-54 is 63 percent compared to 94 percent for men. such as labour force • Women are proportionately over- participation, wages represented in low-wage jobs. and job quality. • In many countries, women are more highly educated than men in the same Ferrant et al. (2014) occupational categories but earn lower wages. The recognition that gender diversity, inclusion • Globally, there is a gender wage gap of 22 percent when calculated on the basis of and pay equity are important dimensions median monthly wages. of corporate sustainability performance has • Across the world, the proportion of women grown in recent years due not only to rights- declines, sometimes sharply, in the based expectations12 and pressures, but also transition from lower to higher hourly wages. to economic analysis confirming that gender • Women tend to spend around 2.5 times equality within corporate structures is good for more time on unpaid care and domestic the “bottom line”, competitive advantage and work than men. The amount of time devoted to unpaid care work is negatively correlated GDP growth. Women’s disadvantage in the with female labour force participation. world of paid work (see Box O.5) is not so much • Women are constrained from achieving a blind spot within corporate sustainability the highest leadership positions. In 2019, disclosure and reporting as it is one where only 6.6 percent of Fortune 500 CEOs were 12 See, for example, women. the Women’s structural dimensions have been marginalized Empowerment and where meaningful quantitative performance Principles established by the UN Global metrics are lacking, as are normative targets Compact and UN Source: Based primarily on ILO 2018, UN Women 2018. against which to measure progress through time. Women in 2010.
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measured in terms of monthly or hourly earnings—is clouded by methodological issues, underreporting, or the tendency to provide one company-wide figure rather than a breakdown by occupational or income categories. In the case of gender balance, attention focuses heavily on women’s repre sentation at the highest executive levels, or on company boards, rather than diversity within different occupational and hierarchical cate gories. In the case of care, attention often focuses narrowly on one aspect—maternity or paternity leave associated with pre- and post- natal care or adoption—rather than care as a multi-faceted and long-term lifecycle issue.
Image source: larepublica.pe/carlincatura/. Reproduced with permission from Carlos Tovar “Carlín”. The gender pay gap is an indicator that factors in structural determinants associated with the “sticky floor”, the “glass ceiling” and the “double From a structural perspective, what is the core burden”. In other words, it takes account of the issue underpinning gender inequality in the determinants of gender disadvantage linked workplace? Essentially, it relates to segmented to sectoral or occupational gender segregation labour markets, cultural bias and the gender or polarization, as well as the suppression of division of labour associated with caregiving.13 women’s remuneration and possibilities for full- Women’s paid work is often concentrated in time work and promotion linked to educational low-paid, low-quality jobs. Advancement within disadvantage, care responsibilities, and cultural the workplace and career structures remains norms and bias. heavily constrained by cultural norms and bias that disadvantage women. These constraints Conventional disclosure and reporting re reinforce the so-called double burden: even as lated to these aspects suffer from two major women increasingly take up paid work, they limitations. First, the metrics and indicators do continue to assume the primary responsibility not necessarily tell us very much about whether for non-paid care provision. the structural conditions related to segmented labour markets and segregated occupational From the perspective of gender justice and categories, as well as cultural norms, bias transformative change, it is important to re and the care burden, are being addressed. think priorities and metrics within corporate Second, conventional indicators often relate sustainability accounting related to gender equal to very partial aspects of gender inequality and ity in the workplace. Chapter 6 of the report disadvantage in the workplace that miss the focuses on three specific key performance issues bigger picture. and related indicators: (i) the gender pay gap; (ii) gender balance within corporate structures; and Metrics and targets related to gender balance (iii) corporate support for caregiving. need to extend beyond company-wide averages, and the boardroom or the C-suite, to a diverse While corporate sustainability reporting range of occupational, hierarchical and remu may address these issues, the indicators neration categories. Figure O.2 suggests a data used often do not allow management and presentation format that reveals gender balance other stakeholders to effectively gauge per within different occupational categories, how formance related to gender equality in any it has changed over time and how it relates to comprehensive sense. The measurement of gender parity. A similar format can be used to 13 See ILO 2019, UNRISD the gender pay gap—the average remuneration reveal the state of play regarding representation 2005, Barrientos 2019. of women as a percentage of that of men, of ethnic or racial groups.
14 CORPORATE SUSTAINABILITY ACCOUNTING: WHAT CAN AND SHOULD CORPORATIONS BE DOING?
Figure O.2. Representation (%) of men and women in the corporate pipeline in relation to gender parity (United States and Canada, 2015 and 2019)
Parity Parity Parity Parity C-suite C-suite 22 78 18 4 10 68 17 83 Senior vice president Senior vice president 26 74 21 5 10 64 23 77 Vice president Vice president 31 69 24 7 12 57 27 73 Senior manager / director Senior manager / director 35 65 26 9 14 51 32 68 Manager Manager 39 62 27 12 17 45 37 63 Entry level Entry level 48 51 30 18 16 35 45 55
2019 2015 Women of colour Men of colour
Women Men
Figure source: Based on LeanIn. Org. and McKinsey Presenting data by occupational category pro to support and facilitate care. Emerging best & Company. 2018, 2019. vides a window onto how women are faring in practice suggests six types of support that are relation to four transitions: (i) from the home key: (i) paid maternity/paternity leave beyond or the informal economy into the formalized legal norms; (ii) on-site provision of care services workforce; (ii) from operational to managerial or subsidies to access off-site facilities; (iii) roles; (iii) from junior to senior management; emergency back-up care, which allows employees and (iv) through the glass ceiling to the C-suite access to child and elderly care services for a and the boardroom. set number of days per year; (iv) flexitime or compressed work weeks; (v) teleworking; and The report identifies normative targets that (vi) programmes to smooth transition to and have been proposed or applied, which provide from extended leave.14 a benchmark against which to measure progress. Targets within the range of 30 percent to 50 Given that caregiving is a lifecycle issue, it is percent, and the specific goal of 40 percent, important that companies have in place a constitute markers for gender diversity that policy that addresses this fact and recognizes are gaining currency. Normative targets noted the need for some level of support for an em for the gender pay gap range from less than 3 ployee’s caregiving needs associated with pre- percent to parity, with annual reductions of 3 kindergarten, pre-teen and elder care. percent or more sometimes cited as best practice. But disclosure needs to extend beyond de While sustainability accounting related to scriptions of company principles, policies gender diversity and the pay gap has shown signs and programmes. Standard-setting bodies of improvement in recent years, the same does and companies should identify quantitative not apply to the issue of care. Conventional indicators to measure corporate sustainability sustainability disclosure and reporting appear to performance related to care along various have missed a key point about care as a material dimensions: (i) how many of the possible issue: it is not simply a short-term issue related forms of support noted above are provided; (ii) to maternity or paternity leave associated with levels of financial support; and (iii) potential pre- and post-natal care or adoption, but a long- as well as actual beneficiaries. Potential term lifecycle issue. It is imperative for standard- beneficiaries would include employees with setting bodies to develop more effective reporting significant care responsibilities, and those guidelines and targets related to care. entitled to care support. Actual beneficiaries include those who actually take advantage of
While public policy must play a key role, there various forms of care support to which they 14 McKinsey & Co. are numerous ways for companies themselves are entitled. and LeanIn.Org. 2018.
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CHAPTER 7 Corporate Taxation
“
The issue of income inequality involves not only patterns of distribution within corporate [T]he core of public and structures and value chains, but also distribution government concern over involving other stakeholders, not least gov corporate tax behaviour is ernments and citizens affected by taxation. A fairly straightforward, i.e. the secular trend under globalization has been the perception that some corporate shift from progressive to regressive forms of taxpayers may be taking steps taxation, reflected, for example, in lower rates of to ensure that taxable income, corporate tax and income tax paid by the rich, as profits or gains do not arise in well as higher rates of consumption (including jurisdictions where business value-added) tax. Corporations often engage in operations are actually located, so-called aggressive tax strategies and planning, but elsewhere, particularly in which foster tax dodging. Global profit shifting jurisdictions where they will be to affiliates outside of headquarter countries subject to low or no tax. was estimated to involve nearly 40 percent of transnational corporations’ profits in 2015 (55 Christian Aid, Oxfam percent in the case of affiliates of US TNCs), and ActionAid (2015) accounting for some USD 600 billion being 15 Tørsløv, Wier and shifted from relatively high to very low tax Zucman (2018). destinations.15
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Another concern relates to the “tax gap” between Chapter 7 of the report suggests a number of key the rate of tax actually paid and the statutory performance indicators and reporting formats rate. Research carried out by MSCI ESG for assessing whether corporate tax behaviour is Research on 2,160 companies compared each consistent with sustainability norms. The first company’s reported tax payments between 2011 step must be transparent country-by-country and 2015 with the average corporate tax rate of reporting that (i) shows whether taxes paid the countries in which it generated revenues. reflect real business activity and (ii) is publicly According to the findings, about a quarter, 531 disclosed. Within the field of voluntary report companies, were found to have a “high tax gap” ing, Vodafone has taken the lead in disclosing of 10 percent or more below the average statutory such data (see Table O.2).16 According to rate. Their average effective tax rate was 14.3 Faccio and Fitzgerald: percent, less than half of the average “expected” statutory rate of 31.8 percent (Sayani 2017). The…data…clearly shows the misalignment between the current taxable profit allo While the international development commu cation and indicators of the Group’s real nity has long been concerned about corporate economic activities (sales, employees and strategies to minimize tax revenues via such assets) in the countries where Vodafone means as transfer pricing and the use of tax operates and thus the potential for [base havens, the issue has often flown under the radar erosion and profit shifting] activities by the within corporate sustainability accounting. Group through the use of low-tax ‘conduit’ countries (2018:75). The SDGs, notably SDG 17, have reinforced interest and concerns related to corporate Nevertheless, with such data in the public taxation, which is seen as a key mechanism domain the company’s stakeholders can assess far for achieving the level of domestic resource more accurately the nature of the sustainability mobilization required to implement the challenge the company faces in this area. As SDGs via, for example, investment in public with other types of cutting-edge disclosure—for infrastructure and services. Clearly, it is also example, when companies calculate their Scope 3 relevant for achieving SDG 10—reducing carbon emissions—the data may reveal a wide gap inequality within and between countries. between actual performance and sustainability
Table O.2. Vodafone Group countries of operations (Top three countries by economic activity and by profits, millions of euros, 2016-2017)
Corporation Revenues Profits* Employees Assets Tax
Countries with most economic activity
Germany 10,619 -636 15,714 1,925 89
UK 7,536 -504 17,951 1,491 -89
India 6,847 -338 23,836 1,313 340
Countries with most profits 16 Vodafone Group Plc. Taxation and our total Luxembourg 187 1,450 325 17 5 economic contribution to public finances South Africa 4,187 1,077 5,213 544 359 2016-2017. Accessed 30 November 2019. Italy 6,249 686 7,339 881 87 https://www.vodafone. com/content/dam/ *Profits before tax sustainability/pdfs/ Source: Derived from Faccio and Fitzgerald 2018:75-76, 88-89, based on Vodafone 2018. vodafone_2017_tax.pdf
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• tax gap: effective tax rate as a percentage of statutory tax rate; • effective tax rate as a percentage of the industry rate; and • ratio of pre-tax profits to wages, by affiliate.
Tax justice and the transformative challenge re lated to taxation involves transitioning from a regressive and aggressive tax system to one that is progressive.
Establishing thresholds and targets to assess good or bad corporate tax performance over time is difficult not only because of differing opinions as to what is legitimate in terms of commercial practice and “tax planning”17 but also because so much depends on public policy and regulation. What should corporations on their own be expected to do? At a general level, it seems clear that they should be facilitating, rather than resisting, reforms aiming for tax justice and enhanced disclosure and transparency. From the perspective of sustainability accounting and transformative norms, but at least the companies taking on this change, corporations can no longer be part and challenge are among a small group that are being parcel of an aggressive and regressive international upfront about the state of play. taxation agenda, where their practices fuel a headwind against people-centred and equitable From the perspective of transformative change, development (Brock and Pogge 2014). the key question is: “Does the company provide qualitative and quantitative data that might Benchmarks could be used for certain indicators. support the commitment to avoiding artificial In relation to the tax gap, for example, a range corporate structures?” (PRI 2018). Of particular of 0 to 5 percent might be considered legitimate. interest in this chapter of the report is the An alternative approach to benchmarking, quantitative dimension of the question. Useful adopted by the Fair Tax Monitor to assess data include: government performance, scores the trend rather • 18 17 See Faccio and effective tax as a percentage of pre-tax than setting a fixed time-bound benchmark. Fitzgerald 2018:76, in profits by group, affiliate and country; Progressivity, then, would be reflected in con relation to Vodafone. • pre-tax profit as a percentage of revenues vergence of effective tax rates with statutory and 18 Make Tax Fair, Oxfam (three-year average, given possible wide industry norms; regressivity/aggressivity would Novib, Tax Justice fluctuations in annual figures); be reflected in divergence. For corporations Network-Africa. FTM Methodology • profit attributed to recognized tax operating in multiple countries, fairness would and Results. 2015. havens and low-tax jurisdictions; be reflected in trends showing a reduction of https://maketaxfair. net/ftm/about-fair-tax- • volume and percentage of group misalignment between taxes paid and economic monitor/ profits; activity by country.
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CHAPTER 8 Labour Rights
The ‘forbidden“ numeraire’, whose stocks, flows, and distribution could lend itself An underlying cause of inequalities that dis to indicators, is power. I don’t advantage many workers, women and other think many of us [know how to social groups has to do with highly skewed power measure power]. I suspect that relations. Through the lens of labour rights it is not so much because it is and corporate political influence (addressed in unmeasurable as because it Chapter 9), the report examines how corporate is not politically acceptable to sustainability disclosure can reveal both the raise the topic. … All the more scale of the problem and how corporations reason to try to measure it. might take steps to reconfigure power relations in ways conducive to sustainable development. Donella Meadows (1998)
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Attention to labour rights often figures prom through actions that strengthen core labour inently within discourse and policy objec rights. It outlines several concerns related to tives associated with social development and underreporting on labour rights and incon corporate social responsibility. Real world trends, sistency in the type of data disclosed, and goes however, have tended to move in the opposite on to emphasize the need for transnational direction, notably in the context of public policy corporations to provide disaggregated data that agendas and management strategies favouring reveal variations in labour rights by country labour market flexibilization and outsourcing. where major affiliates and suppliers are located, The two conventional indicators associated rather than a general group-wide figure. This in with core labour rights, namely, trade union turn requires transparency regarding the location density (percentage of workers belonging to a of suppliers. The chapter ends by calling attention trade union) and collective bargaining coverage to blind spots in reporting that are key for (percentage of workers covered by collective assessing corporate sustainability performance bargaining agreements) reveal a declining trend in relation to labour standards and labour rights. over several decades. They include the scale of reliance on temporary labour and subcontracting via labour brokers, and the extent to which a company’s pricing and procurement policy or practices contradict—or align with—the sustainability objectives of both lead corporations and suppliers.
While reporting frameworks, such as those of the Global Reporting Initiative and Sustainability Accounting Standards Board, generally call on companies to disclose the percentage of employees covered by collective bargaining agreements, few appear to do so. The paucity of disclosure relates not only to organization-wide percentage metrics but also to (i) data disaggregated by region or country where a corporation operates, (ii) supply chain mapping, and (iii) the tendency to provide annual snapshots as opposed to extended time- series data.
There is ample room for corporations to act A critical first step within sustainability account within their sphere of influence to alter the ing is to reassert the importance of labour rights current trajectory of labour rights erosion. by correcting a bias that often characterizes Corporations have the chance to modify this disclosure related to labour standards. Both trend, most directly when collective bargaining public policy and corporate policy suffer from occurs at the enterprise level but also sectorally— the same problem: the tendency to focus more in particular when the corporation in question on management systems and performance is a dominant industry player—and nationally, related to social protection or working con through participation and influence in ditions, rather than the realization of labour employers’ associations. rights. But even companies that emphasize labour rights in their social responsibility Chapter 8 of the report examines indicators agenda often fail to comply with the minimum that can demonstrate whether corporations guidance of the GRI and other standard are facilitating the necessary reconfiguration setters regarding quantitative data on collective of power relations in corporate governance bargaining coverage.
20 CORPORATE SUSTAINABILITY ACCOUNTING: WHAT CAN AND SHOULD CORPORATIONS BE DOING?
Annual data snapshots of company-wide collective bargaining coverage can do more to Table O.3. Collective bargaining coverage at Total and Electrolux obfuscate than clarify. It is important that data be presented in a way that facilitates trend analysis, 2013 2014 2015 2016 2017 2018 for example via time series that span a minimum Total* ... 67.8 65.5 68.9 73.1 71.5 of five years. Data from Total and Electrolux % of employees in Table O.3 show why this is so from the Electrolux** 63 63 59 57 58 ... perspective of sustainability accounting. Simply % of employees knowing that 71.5 percent of Total’s employees, or 58 percent in the case of Electrolux, were * See https://www.sustainable-performance.total.com/en/ covered by collective bargaining in 2018 and social-indicators; https://database.globalreporting.org/ 2017, respectively, tells us nothing about their reports/57652/) different performance trends, which in one case ** See https://www.electroluxgroup.com/en/electrolux- is trending upwards, and in the other downwards. sustainability-report-2017-24501/
It is also crucial to provide country-by-country data to reflect and detect variations in countries where key affiliates and major suppliers operate, to encompass corporate lobbying and other as noted in the case of PUMA (see Box O.4). A forms of political influence that promote rather number of corporations are also attempting to than resist progressive labour market policy extend the collection and disclosure of infor reforms (as discussed in Chapter 9 of the report). mation beyond top-tier suppliers to others in the supply chain, including raw material suppliers. It is important to contextualize data on labour rights. Positive trends in freedom of association High sustainability performance would be as and collective bargaining coverage may mask sessed not only on the basis of high rates of regressive trends, such as significant decline unionization and collective bargaining coverage, in permanent or fixed-term employment and/ but also ongoing improvements through time or increased reliance on subcontracted labour, and the extent to which significant regional both of which are often associated with weak or country deficits are corrected. It should labour rights. It is useful, therefore, to (i) provide be noted that certain legal contexts may limit and compare time-series data on permanent both workers and companies in their ability and fixed-term employment with that on rev to enable unionization. The same need not enues and profits, and (ii) disclose data on the apply for collective bargaining, however, given percentage of the workforce of affiliates or top- the possibility of diverse forms of worker tier suppliers that are subcontracted. participation and representation in governance within the enterprise which do not necessarily The efforts of corporations to support labour require a trade union. rights within their supply chain are often contradicted by aggressive commercial policy Given the importance in some countries of and purchasing practices that constrain the sectoral and national-level bargaining, there capacity of suppliers to respond to enhanced may be limits as to what should be expected sustainability norms through upgrading in the of corporations in terms of quantitative im areas of labour rights and working conditions. provements in collective bargaining coverage at To assess the prevalence of such situations, it the enterprise level. Nonetheless, this suggests would be useful for corporations to disclose that corporate responsibility should extend the scale of financial support and incentives beyond enterprise-level efforts to facilitate provided for suppliers engaged in social or freedom of association and collective bargaining sustainability upgrading.
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CHAPTER 9 Corporate Political Influence
The challenge of reconfiguring power relations involves not only enhancing the capacity of stakeholders negatively impacted by inequality [I]ncreasing market and unsustainable development to exert claims concentration in leading on corporations and governments, but also sectors of the global restricting the capacity of corporate interests to economy and the growing shape public policy in ways that reproduce and market and lobbying reinforce inequitable patterns of development powers of dominant (see Box O.6). corporations are creating a “ new form of global rentier Corporate political influence (CPI) has risen capitalism to the detriment dramatically in recent decades. This reflects of balanced and inclusive both the volume of financial and human growth for the many. resources allocated by corporations to electoral politics, lobbying and other forms of policy UNCTAD (2017:119) advocacy, as well as the relative decline of countervailing ideological and political forces associated historically with developmental or welfare states, trade unionism and other forms
22 CORPORATE SUSTAINABILITY ACCOUNTING: WHAT CAN AND SHOULD CORPORATIONS BE DOING?
After decades in which CPI was a quasi-taboo Box O.6. Why should corporate political influence be of concern? topic, or one that was reduced to issues of corruption and bribery, a broader coalition • Policy making, which should be of interests is now paying more attention to in the public interest, ends up this issue, promoting a three-pronged agenda favouring narrower private or vested for action: (i) transparency, in order to expose interests. and measure the spending and relationships • CPI supports or fosters policies associated with CPI; (ii) a management system associated with economic liberalization and aggressive growth to control for good and bad practice; and (iii) strategies—“free trade”, tax cuts, narrative reporting on lobbying positions. environmental and labour market Particularly important from the perspective flexibilization or deregulation, for example—that can undermine of sustainability accounting is to demonstrate human and labour rights, social when and how ESG principles and goals are policy, environmental protection supported, rather than undermined, by CPI. and development strategies in the Global South. Chapter 9 of the report addresses the challenge • There can be considerable of measuring the sustainability performance of misalignment between a company’s lobbying objectives and its CSR or corporations as it relates to CPI and identifying ESG principles and goals. appropriate indicators. Beyond transparency and • CPI is opaque and largely hidden qualitative indicators, the chapter also considers from view. possible quantitative indicators and targets. • The volume of resources dedicated to corporate lobbying is not only Some standard-setting or ratings organizations vast but far exceeds what can be are ratcheting up their guidance, insisting on mobilized by other stakeholders and interest groups. more granular disclosure that captures forms of CPI that are often neglected, notably lobbying— • Corporations often support protectionist measures, subsidies both direct and indirect via, for example, trade and other incentives that may associations (see Box O.7). Various advocacy undermine the capacity of small- organizations are also calling for disclosure and medium-sized enterprises to access markets and compete on a related to the so-called revolving door—that is, level playing field. the two-way flow of technical and managerial personnel between the public and private sectors under conditions that can create conflicts of interest. of active citizenship. Systemic and structural The current drive towards greater transparency changes associated with financialization and the and granular disclosure is an important first scaling up and concentration of market power step in improving corporate sustainability per underpin these developments. As UNCTAD formance accounting related to CPI. Relevant explains, corporate financial performance is indicators include: increasingly determined by “rents”—that is, • forms of direct expenditure “income derived solely from the ownership and disaggregated by recipient (lobbying control of assets, rather than from innovative organization, political campaign); entrepreneurial activity and the productive use • forms of indirect expenditure of labour”. Through CPI, corporations seek to channeled through third party craft the institutional arrangements, including organizations (trade associations, property rights and regulations, that are needed not-for-profits); to secure privileged access to and control of • group-wide and subsidiary particular assets (UNCTAD 2017:120). expenditures;
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Box O.7. Ratcheting up CPI disclosure • percentage of operations covered, guidelines at RobecoSAM where spending data are only available In 2017 RobecoSAM introduced a new criterion for specific regions; for its annual global survey of company ESG • country-by-country expenditures; performance, the Corporate Sustainability • expenditure by in-country jurisdiction Assessment (CSA), to gauge the volume of political spending by companies. Specifically, the (local, state/provincial, central/federal criterion asked companies to (i) disclose their levels) in countries where headquarters total spending on policy influence efforts over and major affiliates are located; the last four fiscal years; and (ii) specify the top • total and disaggregated spending over five recipients of those contributions grouped into organizations, candidates or issues. It soon the last four fiscal years; became apparent, however, that more granular • spending by top five recipients; and data would be required for any meaningful • three largest recipients per major policy assessment. issue or topic for which a company According to the 2017 CSA: advocated and spent money. • many companies only reported political contributions and very few companies “broadly and liberally disclose their From an aspirational perspective, however, spending in the various policy influence transparency needs to go beyond data on areas” (RobecoSAM 2018a); corporate political spending and narrative re • most did not publicly disclose expenditures porting on policy positions. It also needs to beyond what is legally mandated, nor trade association memberships; address other dimensions of political influence • contributions to trade associations far such as knowledge transfer and the revolving exceed more direct spending on lobbying, door. Possible indicators here include: campaigns, and other explicitly political organizations; • disclosure of issues or topics is rare • number of technical and managerial (RobecoSAM 2018b); staff seconded to and from the public • positive engagement on issues such as climate change or green building are far sector during the reporting year; outweighed by the negative. • number of new technical and managerial staff that worked in To address several of these issues, the two the public sector during the previous indicators were updated in 2018: • separating the various types of spending two years; and into distinct categories; • number of days that technical and • specifying the percentage of operations managerial staff participated in expert covered, where spending data is only available for specific regions; and group meetings organized by public • specifying two major issues/topics sector entities. for which a company spent money (directly or indirectly) to influence policy, the company’s position in support The report proposes three possible approaches or opposition, and the three largest regarding sustainability targets related to cor contributions to organizations, candidates porate political influence. The first is zero or associations. tolerance: setting targets to cut political spending or eliminate it altogether. The second involves Sources: RobecoSAM. 2018a. “The Good, the Bad, setting annual limits—in the range of USD and the Ugly: Corporate Policy Influence under scrutiny 200,000 to 500,000 for large corporations, for in the age of SDGs”. In The Sustainability Yearbook 2018, edited by RobecoSAM. Accessed 30 September example. The third involves setting targets for the 2019. https://www.goldfields.com/pdf/sustainbility/ amount of spending directly in support of issues sustainability-reporting/awards-achievements/ robecosam-yearbook-2018.pdf; RobecoSAM. 2018b. and policies globally recognized as essential to the 2018 RobecoSAM Corporate Sustainability Assessment SDGs. Additionally, companies could indicate (CSA): Methodology Changes. Accessed 30 September 2019. https://es.slideshare.net/RobertDornau/2018- clearly the degree to which their overall lobbying robecosam-csa-methodology-changes is aligned with the SDGs.
24 CORPORATE SUSTAINABILITY ACCOUNTING: WHAT CAN AND SHOULD CORPORATIONS BE DOING?
Summing Up
Part 2 of the report focuses on a concise set of key disclosure—from a narrow concern for resource performance issues that relate to the structural intensity to the more ambitious goal of absolute determinants of (un)sustainable development. decoupling—serves this purpose, as it directs None of the issue areas is entirely new and yet, attention to the need for transformative change while key from the perspective of transformative associated with production and consumption change, they have been poorly treated within patterns. The five issue areas that are the focus of the field of corporate sustainability assessment. Part 2 of the report would accomplish a similar Within the portfolio of reporting guidelines of purpose for aspects of sustainability associated several standard-setting and ratings organizations with distributional justice, gender equality and can be found metrics and indicators that relate democratic governance. to each of the five areas. The report argues, however, that the disclosure bar needs to be Throughout, the report also insists on the need raised in various respects. to pay more attention to quantitative indicators and to guard against reading too much into many It is also important to note that while the of the qualitative indicators that are often held up normative targets identified in the report may as a proxy for improved performance. Another appear highly ambitious, they should not simply major concern is that conventional disclosure be dismissed as unrealistic or unhelpful. As noted and reporting tend to be de-contextualized, in relation to carbon emissions, for example, that is, disconnected from certain background, several companies committed to sustainable related or normative conditions which, when development objectives are calculating their im added to the equation, enable users of data to pacts along the entire value chain within their gain a far clearer picture regarding corporate sphere of influence. In so doing, they recognize sustainability performance. Company-wide aver the daunting challenge posed by science-based ages, for example, may mask major variations emissions targets. They also realize, however, that in performance by region, country or affiliate. such measurement and disclosure is critical for A focus on activities directly controlled by the alerting management and other stakeholders to corporation may mask what is happening within the scale of the challenge ahead and for developing a company’s sphere of influence in relation to a long-term strategy. Such measurement and re the supply chain and distribution. Highlighting porting, in itself, can be an indicator of whether positive performance in one issue area or a corporation truly comprehends the meaning indicator may mask negative performance in of sustainable development, its position on a another related area. Particularly worrisome is sustainability pathway, and where it needs to the fact that conventional sustainability reporting travel to transform fundamentally. generally focuses on current performance with out contextualizing the present in relation to Raising the bar either the past or the future. It is impossible to The bottom line is that it is only possible to assess current performance without knowing gauge whether a company is on a sustainability whence we came (past performance) and where pathway if it discloses data that are structurally we want to get to in terms of normative targets. oriented, quantified, contextualized and user friendly. The report’s main findings related to (i) how issues and indicators could be reconfigured, The starting point is to prioritize issue areas (ii) the need for more granular and transparent that relate to the structures that reproduce disclosure, and (iii) normative targets that inequality and injustice. The report argues define performance in relation to sustainable that the emerging shift within environmental development are summarized below.
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Main findings: Issues and indicators Fair When considering whether remuneration is fair, it is essential to examine not remuneration only wage levels at the bottom of the income pyramid but also at the top. When calculating pay ratios based on CEO remuneration, it is important to move beyond comparing CEO remuneration with the average remuneration of all other employees by calculating the CEO-worker pay ratio. There is also the possibility of comparing CEO pay with that of employees in the lowest income quartile.
Compare actual wages not only with the minimum wage or industry norms, but also with the living wage. Compare the percentage increase in wages with that of management and CEO remuneration, as well as profits. A useful quantitative indicator is the percentage of employees earning below the living wage.
Gender Broaden the focus on maternity or parental leave associated with childbirth equality and adoption to encompass care support provided or required throughout the lifecycle. In relation to the portfolio of possible support programmes, disclose which forms of support are provided. Disclose the percentage share of employees requiring care support with those entitled to care support and those who actually receive such support.
Corporate Disclose not only the amount of corporate taxes paid but also the tax gap (effective taxation tax rate as a percentage of the statutory rate), the effective tax rate as a percentage of pre-tax profits and the industry norm, and the volume and percentage of global profits attributed to recognized tax havens and low-tax jurisdictions.
Labour Focus not only on working conditions but also on labour rights, in particular rights trade union density and collective bargaining coverage. Include data on the volume and percentage of total employees in affiliates, factories and top-tier suppliers engaged via subcontracting and temporary contracts.
Corporate Move beyond disclosure related to corporate political spending to include forms political of influence associated with lobbying and the revolving door. influence
Main findings: Transparency and granular disclosure Gender Go beyond company-wide metrics by disaggregating both gender representation equality and the gender pay gap by occupational category.
Fully disclose and quantify lifecycle care needs and levels of support, disaggregate company support for caregiving by different types of support in terms of expenditure and number of beneficiaries.
Corporate Publicly report country-by-country tax disclosure that includes metrics taxation related to revenues, assets, employment, pre-tax profits, taxes paid and the effective tax rate.
Labour Reveal collective bargaining coverage and trade union density by main countries of rights operation, and by affiliate and main suppliers; and publicly disclose supply chain factories, enterprises and producers, including employment and labour rights data.
Corporate Move beyond partial to full disclosure related to multiple forms of corporate political political influence by providing data on both direct and indirect political and influence lobbying expenditures (including via trade associations), as well as by different levels of policy making (international, national, state/provincial and municipal), countries of operation, major affiliates, major recipients, and major issue areas and SDGs.
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Main findings: Normative goals, targets or target ranges
• CEO-worker pay ratios in the region of 10-50 to 1 depending on sectors and institutional settings • Wage levels that meet the living wage • Decreases in the gender pay gap of 3 percent or more per annum, and a gender pay gap of less than 3 percent • Equal representation of women and men in the workforce; women’s representation above 40 percent at board and executive levels • A corporate tax gap within the 0 to 5 percent range • An increasing as opposed to declining trend in collective bargaining coverage, with the aim of achieving full coverage • Zero corporate political spending, or spending not exceeding USD 200,000 to 500,000 per year in the case of large corporations • Regarding the revolving door, zero movement of personnel from the public to the private sector during a two-year cooling off period
The discussion in Part 2 also insists on the need to enhance user-friendly disclosure through time series data that reveal trends over time. A five-, 10- or even 20-year time horizon for several of the above indicators is far more revealing than an annual or two- to three-year snapshot. Time series data are important for revealing instances of contradictory performance or red flags. Such data allow stakeholders to better assess the validity of the seemingly positive developments in corporate sustainability metrics and indicators associated with fair remuneration, labour rights/ employment and corporate political influence, as noted below.
Fair Does compliance with minimum wage regulations and industry norms mask remuneration the fact that increases in nominal wages fall far short of increases in labour productivity and profits, or do not translate into increased real wages when adjusted for inflation?
Labour Do increasing rates of collective bargaining coverage among full-time em rights ployees occur in a context where the percentage share of full-time employees is declining in relation to subcontracted (non-unionized) labour? How do changing levels of full-time employment compare with those of revenues and profits? Such data reveal whether economic growth supports or undermines growth in full-time employment.
Corporate Long-term trends that indicate growing market share may signal a context political conducive to increased corporate political activity and influence. influence
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Such a group could usefully engage in the following areas of work. • Forging a consensus on the relevance of the approach to sustainability disclosure and the five issue areas and related indicators highlighted in this research. • Examining other transformative blind spots that are flagged in the research but not examined in depth, such as the fair distribution of income and value added throughout the global commodity or value chain, and whether a company’s commercial policy and purchasing practices facilitate or undermine its upgrading efforts in the supply chain. • Promoting granular and transparent disclosure, identifying those indicators Future work where this is particularly important, such as country-by-country tax At various points the report refers to ongoing disclosure, pay and promotion by challenges of designing and promoting indicators occupational category, and supply for transformative change. It is hoped that the chain performance. structural and contextualized approach presented • Promoting user-friendly disclosure in the report provides a foundation for future through time series data that allow work to ensure that corporate sustainability stakeholders to view trends as accounting serves to effectively measure impacts opposed to annual snapshots. and assess progress. • Highlighting the need for disclosure and data related to contradictory The UNRISD research behind the report is performance trends or “red flags”. complementary to cutting-edge civil society • Raising the bar and promoting and private sector initiatives in this field. greater consistency and It highlights not only the need for multi harmonization of the methods for stakeholder collaboration, but also the useful calculating specific indicators, such as role of United Nations-led and interagency CEO pay and CEO-worker pay ratios, inquiry in advancing the practice of corporate the living wage, the gender pay gap, sustainability measurement and performance. care support and corporate political It is vital that organizations like UNRISD, the spending. ILO, UNCTAD, UN Women, OHCHR, UNEP, • Identifying normative targets or and specific initiatives such as the UN Global target ranges related to thresholds Compact, among others, come together in a and fair allocations consistent with a more structured way to address ongoing blind transformative notion of sustainable spots, reprioritize issues, refine indicators, development. harmonize methods, promote user-friendly dis • Examining the possibilities of time- closure formats and identify normative targets. bound targets that set a certain date for compliance, as is beginning to occur in the case of carbon emissions or as seen in the 2030 horizon for the SDGs.
28 CORPORATE SUSTAINABILITY ACCOUNTING: WHAT CAN AND SHOULD CORPORATIONS BE DOING?
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30 CORPORATE SUSTAINABILITY ACCOUNTING: WHAT CAN AND SHOULD CORPORATIONS BE DOING?
PART 1 Assessing the State of Play
Introduction social and governance) performance, also empha sizes responsibility related to “good governance” Efforts to regulate transnational corporations in (including transparency, accountability and the 1970s19 and the popularization of the concept stakeholder participation). of sustainable development in the late 1980s20 19 Particularly relevant spurred a global movement to enhance the social The upshot of these efforts has been the emer were the 1976 and environmental responsibility of companies. gence and consolidation of a vast CR ecosystem OECD Guidelines Numerous terms and concepts encapsulate this comprising myriad organizations and institutions for Multinational Enterprises and the approach: corporate social responsibility (CSR), associated with the private sector, civil society 1977 ILO Tripartite corporate citizenship, corporate sustainability, and government, operating locally, nationally, Declaration of Principles concerning shared value, blended value organizations, the regionally and internationally (Utting 2012a,b). Multinational fourth sector, and impact investing, among Much of the work of the CR ecosystem has Enterprises and Social others. Given the multiplicity of terms and for centred on designing standards and promoting Policy. convenient shorthand, we will refer to this field ESG or non-financial reporting. Thus, most 20 See the report of the World Commission as that of corporate responsibility (CR). large corporations today disclose and publicly on Environment report data related to CR principles, policies, and Development (1987), Our Common Within the CR field, “sustainability” is generally management systems and performance. And Future, which defined in terms of practices and processes geared other enterprises, notably small and medium- defined sustainable development as towards a “triple bottom line” approach that sized enterprises (SMEs) and top-tier suppliers “development that simultaneously addresses financial/economic, in global value chains, increasingly engage in meets the needs of the present without social and environmental objectives (Elkington sustainability measurement, disclosure and compromising the 1997). Another term, “ESG” (environmental, reporting. ability of future generations to meet their own needs”. 31 UNRISD
The energetic expansion of disclosure in performance accounting on a track that is fit recent decades would seem to bode well for for the purpose of assessing progress towards advancing towards a sustainable future. The sustainable development. It suggests that macro picture, however, does not appear to much still needs to change if the CR agenda support any assumption of linear progress. is to effectively contribute to the realization of Indeed, recent United Nations assessments the 2030 Agenda and transformative change. indicate the contrary: global greenhouse gas Pursuing the trajectory of incremental emissions, for example, reached a peak in change guided by a “do less harm” approach 2017, a year when the energy and industry runs the risk of bypassing issues, indicators sectors increased their emission levels (UNEP and targets that are key from the perspective 2018). The reduction of working poverty of transformative change. The reason why has slowed, while vulnerable employment these particular issues, indicators and targets continues to rise, accounting for 42 percent of are key is because they relate to the structures the world’s workers (ILO 2018). Furthermore, that reproduce and reinforce unsustainable there are serious concerns within the field of and exclusionary patterns of development, corporate sustainability disclosure itself. The including patterns of inequality and skewed information reported by corporations and power relations, as well as forms of growth what is demanded of them by the CR industry and capital accumulation that generate so- often contradict basic accounting principles called social and environmental externalities. and standards. Such issues need to be put at the centre of the CR agenda if we are to develop enterprise Part 1 of this report takes stock of developments and finance models geared more explicitly and ongoing challenges associated with corpo- towards human well-being and planetary rate sustainability disclosure and reporting. health. Divided into three chapters, it begins by looking at how the field of environmental, To chart a path forward, Chapter 3 suggests social and governance performance disclosure that it is useful to think outside the box of has evolved during the past three decades. mainstream innovations and dynamics that are constantly tweaking the CR agenda. Chapter 1 identifies key trends and developments— Four avenues of inquiry are presented: (i) from the early phase of superficial disclosure to a set of cutting-edge innovations associated the significant ratcheting up of standards and with ambitious target setting; (ii) learning processes, as well as the development of an from other business or enterprise models institutional ecosystem that promotes, supports and varieties of capitalism that appear to be and regulates disclosure and reporting. more conducive to inclusive and sustainable development; (iii) replicating in the social Chapter 2 takes stock of ongoing issues and arena the science-based approach that has challenges associated with some of the basic gained currency in relation to environmental principles of accounting, including user- disclosure, by learning from social science friendliness, comparability, reliability, credi theory and multiple disciplinary perspectives; bility, relevance and materiality. It goes on and (iv) learning from different worldviews to identify several recent innovations driven and the perspectives of not only conventional by the mainstream CR industry that aim to stakeholders but also other “rightsholders”21. address these challenges, including attempts All four avenues provide important insights to align reporting frameworks, simplify com into the fundamental factors that explain plex disclosure requirements, place a value and resolve unsustainable development. on impacts via monetization, and better Furthermore, they point us to key issue areas, determine what is relevant and material from indicators and targets that are not only highly the perspective of sustainable development. relevant from the perspective of sustainable development and transformative change, Chapter 3 questions whether past and present but also often neglected within conventional 21 See Thurm et al. 2018. innovations can place corporate sustainability corporate sustainability accounting.
32 CORPORATE SUSTAINABILITY ACCOUNTING: WHAT CAN AND SHOULD CORPORATIONS BE DOING?
CHAPTER 1 A 30-Year Journey
With globalization, transnational corporations were seen to be reaping considerable benefits without assuming commensurate respon 22 Speech at Second sibilities in relation to their social and World Industry “ Conference on With greater freedom environmental impacts (UNRISD 1995). Environmental for the market comes Throughout the 1980s, a series of high-profile Management. disasters, scandals and exposés raised public 10 April 1991. greater responsibility. Rotterdam. Accessed and political awareness of this mismatch. They 15 June 2020. Gro Harlem Brundtland22 involved, for example, oil and toxic gas spills https://www.regjeringen. no/globalassets/upload/ (Exxon, Union Carbide), complicity in human smk/vedlegg/taler-og- rights abuses (Shell), corporate connections artikler-av-tidligere- statsministre/gro-harlem- to rainforest destruction (McDonalds), sweat brundtland/1991/ shop labour (Nike) and child labour (carpet dinner-speech-at- conference-on- industry), and unethical marketing of infant environmental- formula (Nestlé). management.pdf
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Watchdog organizations and other forms of exercise in public relations. Philanthropy was no “civil regulation” of business actively named substitute for needed reforms in labour practices and shamed corporations and industry sectors and production systems, and was generally de (Bendell and Murphy 2002). And in a context tached from core business strategy (Porter and where intangible assets, notably brand names, Kramer 2006). Environmental reports often were becoming an ever more valuable asset,23 amounted to “green glossies” or “greenwash”;24 it was essential for corporations to safeguard while pleasing to look at they provided little reputation and gain reputational advantage. information of substance. Threats of government regulation to deal with environmental and other harms associated The upshot was that corporate self-regulation with corporate behaviour and value chains did not pass muster. Rather than telling stake further pressured companies to self-regulate holders to “trust us, we’ll fix it”, companies through voluntary initiatives (NGLS and promoting corporate social and environmental UNRISD 2002). responsibility were urged to adhere to a “tell me and prove it” approach.25 “Tell me” required CR Meanwhile, strands of management theory put reporting; “prove it” required CR management paid to Milton Friedman’s (1970) adage that systems, measurement of impacts, continuous “the business of business is business”. Rather, the improvement in both management systems and modern-day corporation should respond to not performance, and third-party verification and only the concerns of governments (regulation) assurance. and shareholders but also a far broader range of “stakeholders”, defined as those that affect— or are affected by—a company’s operations Ratcheting up and (Freeman 1984). Such responsiveness was key to institutionalization gaining a competitive advantage. CR also came to be associated with Total Quality Management— The 1992 UN Conference on Environment the comprehensive management approach for and Development (Agenda 21) supported the enhancing quality and reputation, as well as first worldwide call to promote environmental fostering “continuous improvement”—which management: “Business and industry, includ was instrumental in the success of the Japanese ing transnational corporations, should recog business model in the 1970s and 1980s (Deming nize environmental management as among 1986). Later Peter Senge (1990) would expand the highest corporate priorities and as a key this approach to emphasize the virtues of the determinant to sustainable development” adaptive or “learning organization”, a concept (United Nations 1992: para 30.3).26 A decade that resonated with the evolving CR agenda. later, the outcome document of the 2002 World Summit on Sustainable Development, In this context of external pressures and en the Johannesburg Plan of Implementation, lightened self-interest, the field of corporate endorsed sustainability reporting and advocated environmental and social responsibility expand that businesses use the Global Reporting ed rapidly. Early initiatives centred to a large Initiative’s (GRI) Sustainability Reporting extent on developing industry and company Framework launched in 2000 (see Box 1.2). codes of conduct (Jenkins 2002). The nature of 23 Whereas in 1975, corporate philanthropy also began to change, Around the turn of the millennium CR dis 83 percent of S&P with corporations emphasizing conventional closure and reporting expanded significantly. 500 market value was accounted for by charity less and their contribution to society Reviewing a decade of sustainability reporting financial and physical more through support for local economic from 1992 to 2002, Ans Kolk (2004) highlighted assets, by 2009 the figure was just 19 and social development. The disclosure and two sets of developments linked to (i) a stake percent (Integrated communication of information in the form holder approach, and (ii) “implementation like Reporting 2011: 4). of stand-alone reports, notably environmental lihood”. The stakeholder approach was evident 24 See Greer and Bruno 1996. reports, also took off. both in reports that included data on the distribution of value added among categories 25 See Dommen 1999. There was, however, considerable scepticism re such as “employees”, “state”, “shareholders”, 26 See http://www.un.org/ documents/ga/conf151/ garding these early initiatives. Codes of conduct “company”, and in greater attention to stake aconf15126-3.htm were often dismissed as window dressing—an holder dialogue and feedback. Enhanced
34 CORPORATE SUSTAINABILITY ACCOUNTING: WHAT CAN AND SHOULD CORPORATIONS BE DOING?
“implementation likelihood”, that is, “moving naming and shaming of corporations seen to from words to deeds”, was evident in both be engaged in wrongdoing, but also various benchmarking of performance via increased use forms of collaboration and partnership. This of performance measurements in reports and the combination of “insider” and “outsider” tactics growing influence of standard-setting entities, has been crucial for ratcheting up standards and such as the GRI, launched in 1997. But various processes of disclosure and reporting (Bendell caveats applied, including the fact that only 28 2004; Utting 2005, 2008, 2012b). percent of the largest 100 corporations in selected countries were publishing environmental reports, The institutional ecosystem promoting, sup and that benchmarking tended to be related to porting and regulating disclosure and reporting just a few issues areas, notably health, safety and has thickened considerably. Global development some environmental aspects (Kolk 2004). institutions and processes associated with inter governmental and multistakeholder bodies Since the turn of the millennium there have such as the World Bank, the Organisation for been notable advances regarding the scale of dis Economic Co-operation and Development closure and reporting. (OECD), the European Union (EU), the Inter • KPMG reports that the percentage national Organization for Standardization of large corporations (global top 250) (ISO), the International Labour Organization producing CR reports has increased (ILO) and other entities in the United Nations year on year, from 33 percent in system have also played a key role. Building on 1999 to 93 percent in 2017. For recommendations emanating from the 1992 the largest 100 firms in selected and 2002 United Nations “Earth Summits”, the countries (totalling 4,900 firms), the outcome document of the 2012 Rio+20 Summit corresponding figures were 12 percent further encouraged corporations to integrate and 72 percent (KPMG 2017). sustainability disclosure into their reporting • The world’s largest registry of reports, practices, and governments, industries, the CorporateRegister.com, contains United Nations and other stakeholders to work 97,997 corporate responsibility reports to improve this reporting.31 from 16,398 organizations.27 • As of mid-December 2018, some The OECD Guidelines for Multinational Enter 50,638 reports, 31,198 GRI reports prises (MNEs) were one of the first international 27 As noted on corporate. and 13,148 organizations were regulatory initiatives to establish principles and register.com, 11 included in GRI’s Sustainability standards for responsible conduct. Adopted in December 2018. Disclosure Database.28 1976, the Guidelines have been periodically 28 As noted on database. globalreporting.org, 11 • KPMG et al. (2016) identify 383 revised, in part to ensure greater attention December 2018. mandatory and voluntary reporting to supply chain and human rights issues 29 www.unglobalcompact.org instruments in 64 countries, with a as well as render the complaints procedure 30 This milieu of particularly significant increase in more effective. More recently, the European both distrust and recent years. Commission (EC) has obliged large companies high expectations continues to exist. The • By October 2018, the UN Global to report on ESG issues through a 2014 2018 Edelman Trust Compact recorded 9,886 firms as Directive (Directive 2014/95/EU). As noted Barometer (https:// www.edelman.com/ participants (4,556 companies and in Annex 1, the EC has provided guidance on trust-barometer) reports 5,330 SMEs).29 principles, content and key performance issues that faith in CEOs has fallen to 37 percent and indicators to be addressed in non-financial while three-quarters of Both the scaling up of sustainability disclosure reporting (European Commission 2017c). respondents expected companies to both and the ratcheting up of standards has occurred increase profits and in a dual context where declining trust in a As in the case of early CR initiatives, not only improve economic range of institutions, including corporations, push factors involving external pressures but also and social conditions in local communities coexists with heightened societal expectations various pull factors associated with conventional where they operate. 30 that business should do what is “right”. business logic explain the ongoing ratcheting 31 See the Rio Outcome Civil society activism has remained a powerful up of disclosure and reporting. By the turn of document at https://sustainable driver of progressive change, expanding the century it had become clear that a massive development.un.org/ its portfolio of action to include not only “market for virtue” was emerging, creating vast futurewewant.html
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opportunities for generating both profits and produce standards throughout the chain reputational advantage by catering to “green” (Pickles et al. 2016). or “ethical” consumers (Vogel 2007). Employee culture was also evolving, with millennials want Another important driver of ratcheting up and ing to work for decent companies and participate institutionalization was the process of “learning in decent causes (BCG 2017). Shareholder by doing”. As companies gained experience activism centred on CR concerns emerged as with ESG initiatives, they discovered that another driver of change. The socially respon what had initially appeared as a very high bar sible investment community also became a key became less intimidating. Consequently, some player. According to RBC GAM’s 2018 inter- aspects of corporate culture began to change. national survey32 of investment consultants and Institutionalizing sustainability disclosure and institutional asset owners regarding attitudes to reporting within the corporation meant shifting wards ESG integration and responsible invest responsibility for non-financial disclosure up ing, 84 percent of institutional investors now the chain of command to the C-suite. In the incorporate ESG into their investment analysis process, such disclosure gradually moved from (RBC GAM 2018). being a side show to one that was linked to core business strategy. As such, terminology Furthermore, certain strands of management within the CR field shifted from “corporate theory insisted that corporate social responsi social responsibility” towards “corporate bility would not be sustainable unless it were sustainability”.36 part and parcel of core business strategy that aimed to create “shared value” (Porter and The upshot of these drivers has been the emer Kramer 2006, 2011). Rather than simply paying gence of an increasingly dense institutional farmers more via fair trade for example, the ecosystem to promote CR and accompanying “creating shared value” approach sought to raise forms of sustainability disclosure. Beyond the both productivity and the quality of products as firm itself, this ecosystem is made up of old a means to higher prices and incomes.33 and new actors and institutions, including: • civil society organizations, as well The Bottom of the Pyramid (BoP) approach, as knowledge institutions, engaged popularized by Prahalad (2005), extended this in technical assistance, research, logic by pointing to the business opportunities monitoring and advocacy; and profits associated with integrating low- • multistakeholder standard-setting, income producers and communities into corpo promotional, certification and rate value chains as suppliers, distributors and monitoring institutions and consumers. For example, rather than donating initiatives, several of which are cheap drugs, it made more sense, from this indicated in Table 1.1; perspective, to develop a business model based • mainstream private sector on packaging and distributing drugs to low- organizations and institutions such income consumers.34 In Mexico, the cement as accounting firms, stock exchanges, manufacturer CEMEX, through its programme and business, employers or industry Patrimonio Hoy, organizes low-income families associations as well as other firms into self-financing cells to facilitate the building engaged in certification, ratings and and renovation of homes.35 assurance; • state actors—including both national 32 Survey participants came from the United The changing nature of governance within and intergovernmental entities— States, Canada, some global value chains also ensured increased that regulate, support or otherwise Europe and Asia. attention to social and environmental stan promote corporate sustainability and 33 Porter cited in Elkington 2011. dards. For example, within supermarket impact assessment via public-private chains there has been a shift from a situation partnerships, regulations, and “soft” 34 Porter cited in Elkington 2011. where lead firms attempted to impose stan and “hard” law requiring disclosure 35 See Shared Value dards on the supply chain to one where and reporting or participation in Initiative 2015. multiple inter-firm and intra-firm relations multistakeholder standard-setting and 36 See Lacy et al. 2010. and other multistakeholder interactions re regulatory initiatives.
36 CORPORATE SUSTAINABILITY ACCOUNTING: WHAT CAN AND SHOULD CORPORATIONS BE DOING?
Table 1.1. The rise of multistakeholder institutions and initiatives
Year Initiative Focus 1993 Forest Stewardship Council (FSC) Sustainable forestry standards; eco-labelling and certification
1995 ISO 14001 Environmental management standard/certification
1997 Global Reporting Initiative (GRI) Sustainability reporting indicators; application checks
1997 Social Accountability (SA) 8000 Labour standards/certification
1997 Marine Stewardship Council (MSC) Sustainable fisheries; certification and eco-labelling
1997 EuropeGAP/GlobalGAP Food industry standards; certification
1997 Atlanta Agreement on Child Labour Child labour
1997 Fairtrade International Fair trade/agro-ecology; certification
1998 Ethical Trading Initiative (ETI) Agri-food supply chain standards; reporting
1999 Fair Labor Association (FLA) Labour standards/assessments
2000 Worker Rights Consortium (WRC) Labour standards; investigation of complaints OECD Guidelines for MNEs revised via 2000 Global ESG standards; complaints procedure multistakeholder process 2000 Voluntary Principles on Security and Human Rights Standards for participating extractive industry corporations Principles related to labour standards, environmental protection 2000 United Nations Global Compact and human rights; anti-corruption added in 2004. 2002 Extractive Industries Transparency Initiative (EITI) Revenue transparency; disclosure and monitoring
2003 Common Code for the Coffee Community (CCCC) Standards in the coffee chain
2003 The Gold Standard Carbon mitigation standard; certification Worldwide disclosure system for use by investors, companies, 2003 CDP (formerly Carbon Disclosure Project) cities, states and regions in managing environmental impacts 2004 Roundtable on Sustainable Palm Oil Standards in palm oil production; certification
2006 Roundtable on Sustainable Biofuels Standards for biofuel production; certification
2006 Roundtable on Responsible Soy Standards in soy production; certification Principles for responsible investment involving financial services 2006 Principles for Responsible Investment (PRI) industry actors 2007 Better Cotton Initiative Standards in cotton production
2009 Aquaculture Stewardship Council Standards and certification in fish farming Promotes impact investing and manages the Impact Reporting 2009 Global Impact Investing Network (GIIN) and Investment Standards (IRIS) 2010 ISO 26000 Guidance standard on social responsibility Provide guidance to business on how to promote gender equality and 2010 Women’s Empowerment Principles women’s empowerment in the workplace, marketplace and community 2010 International Integrated Reporting Council (IIRC) Promotes integrated reporting, alignment of reporting frameworks Promotes coherence, consistency, comparability between corporate 2014 Corporate Reporting Dialogue reporting standards and frameworks Showcases companies setting science-based emission reduction 2015 Science Based Targets initiative (SBTi) targets and promotes best practices Guides firms to align their business strategies with relevant SDGs and 2015 SDG Compass measure their impacts Guidance for companies to report in line with the UN Guiding 2015 UN Guiding Principles Reporting Framework Principles on Business and Human Rights adopted in 2011 Promotes alignment, measurement and reporting of company impacts 2017 Business Reporting on the SDGs Action Platform on the SDGs Develops publicly available and free corporate benchmarks 2018 World Benchmarking Alliance of companies’ contributions to the SDGs
Note: This table expands on an earlier version from Utting 2015. See Corporate Social Responsibility in a Globalizing World, Tsutsui Kiyoteru and Alwyn Lim (eds.). © Cambridge University Press 2015. Reproduced with permission of The Licensor through PLSclear.
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ISO 26000, for example, identifies seven core Table 1.2. The 10 UN Global Compact Principles subject areas that an organization should address “to define the scope of its social responsibility, Human rights identify relevant issues and set its priorities…” Businesses should support and respect the protection of (ISO 2010:19): Principle 1 internationally proclaimed human • organizational governance; rights; and • human rights; make sure that they are not • labour practices; Principle 2 complicit in human rights abuses. • the environment; Labour • fair operating practice; Businesses should uphold the • consumer issues; and freedom of association and the Principle 3 • community involvement and effective recognition of the right to development. collective bargaining;
the elimination of all forms of Principle 4 Furthermore, economic aspects, health and forced and compulsory labour; safety, the value chain and gender dimensions the effective abolition of child Principle 5 are identified as cross-cutting themes, while labour; and organizations are urged to adopt a holistic the elimination of discrimination approach that “consider[s] all core subjects and Principle 6 in respect of employment and issues, and their interdependence, rather than occupation. concentrating on a single issue”, and to be aware Environment of trade-offs (ISO 2010:20). Businesses should support Principle 7 a precautionary approach to environmental challenges; Through time, there has been an attempt to address gaps related to certain issue areas via undertake initiatives to Principle 8 promote greater environmental additional principles and standards. These responsibility; and include: encourage the development • Corruption, as evidenced in the Principle 9 and diffusion of environmentally establishment of the Extractive friendly technologies. Industries Transparency Initiative Anti-corruption (EITI) in 2002, Transparency Inter Businesses should work against national’s Business Principles for Principle 10 corruption in all its forms, Countering Bribery published in including extortion and bribery. 2003 (revised in 2009 and 2013), and Source: United Nations Global Compact. Accessed 15 the addition of a 10th UN Global June 2020. https://www.unglobalcompact.org/what-is-gc/ Compact principle “Anti-corruption” mission/principles in 2004. • Human rights, which were explicitly Key features of the ratcheting up of CR standards connected to the corporate and practices associated with corporate sustain sustainability agenda via the UN ability disclosure and reporting include the Guidelines on Business and Human following. First, the early tendency to pick Rights in 2011, and internalized more and choose what to measure and disclose has explicitly in regulatory initiatives such given way to a more comprehensive range of as the OECD Guidelines for MNEs. standards. Institutions like the United Nations • Women’s economic empowerment, Global Compact (see Table 1.2), the International the profile of which was raised via the Organization for Standardization (ISO) via Women’s Empowerment Principles the ISO 26000 Guidance Standard on Social launched in 2010. Responsibility, the Global Reporting Initiative • Children’s rights, which were (GRI), the OECD Guidelines on MNEs, and addressed by the Children’s Rights the EU Directive on Non-Financial Reporting and Business Principles, launched by all call on corporations to disclose data related to UNICEF, the UN Global Compact multiple issue areas. and Save the Children in 2012.
38 CORPORATE SUSTAINABILITY ACCOUNTING: WHAT CAN AND SHOULD CORPORATIONS BE DOING?
• Lobbying practices, with disclosure was sufficient to meet basic needs. Furthermore, and reporting guidelines not only in a context where the law in China does not calling for greater transparency but mandate collective bargaining, SA8000 also also lobbying to “drive stronger social called on companies seeking certification for and environmental policy frameworks their operations in China to allow workers to in support of core business” freely elect a representative (Rasche and Gilbert (SustainAbility and WWF 2005:3). 2012:74). • Taxation, in a context where “regulation on tax disclosure has Similarly, in the field of labour rights (addressed increased as companies come under in Chapter 8 of this report), global union increasing pressure to demonstrate federations and transnational corporations have they pay their fair share of taxes in signed international framework agreements all countries in which they operate” (IFA) which commit the corporation in ques (KPMG International et al. 2016:9). tion to assuming responsibility for labour • Supply chain management, with the standards across its global operations. The establishment of several certification number of transnational corporations signing bodies in the late 1990s, and other IFAs increased from 14 in 2001 to 119 in 2017 initiatives, such as the Sustainability (Hadwiger 2018; ILO 2018). Accounting Standards Board (SASB)37 Supplier Code of Conduct. A key aspect of ratcheting up relates to the proc • Poverty reduction, particularly in ess by which a company goes beyond a policy the context of the UN Millennium statement that signals its commitment to re Development Goals (MDGs) and sponsible behaviour regarding a particular issue, subsequent SDGs (van Tulder 2010). to specify and apply concrete implementation measures. The discussion below, related to the New issues are constantly being put on the application of the Women’s Empowerment 37 SASB Sustainability table. Among key emerging issues currently are Principles, is a case in point. The uptake and Accounting Standards are comprised of dis those related to carbon emissions and the SDGs application of the UN Guiding Principles on closure guidance and (SustainAbility 2018). Business and Human Rights is another. accounting standards on sustainability topics for use by United While initiatives such as ISO 26000, the UN Second, progress in terms of a more compre States and foreign public companies in Global Compact and GRI have sought to identify hensive approach is evident in the fact that their annual filings a set of core issue areas of relevance to multiple additional industry sectors and types of busi with the United States Securities and stakeholders, others like the Sustainability ness have coalesced under the CR umbrella. Exchange Commission Accounting Standards Board focus primarily Particularly relevant in this regard is the financial (SEC). The SASB on issues material to the company itself in the services sector, which was engaged through Standards aim to help companies ensure context of the particular sector within which it initiatives such as the Equator Principles related that disclosure is operates. Core issues specified by SASB are listed to managing risk associated with project finance. standardized and therefore “decision- in Annex 2. Initially launched in 2003, the Equator Principles useful”, relevant, were based on the International Finance Corpo comparable and comprehensive (SASB Ratcheting up is also apparent in relation to ration’s (IFC) Performance Standards on En 2017a). specific issue areas. With regard to remuneration, vironmental and Social Sustainability. The 38 PRI Signatories are for example, the attention of certain standard- Principles for Responsible Investment (PRI), required to report setting entities such as the Ethical Trading launched in 2006, engaged a far broader range of annually. Those that do not are delisted. Initiative (ETI) has broadened beyond the pay financial institutions. The PRI has approximately 39 38 See PRI 2018 Annual ment of minimum wages to the payment of a 1,500 reporting signatories from the financial Report “living wage”, the topic addressed in Chapter 5. services industry.39 The 2017 KPMG Survey https://d8g8t13e9vf2o. cloudfront.net/Uploads/ The clothing retailer H&M adopted, in 2013, a of Corporate Responsibility Reporting found g/f/c/priannualreport_ “Fair Living Wage Strategy”. The labour standards that for the first time in the history of the 605237.pdf certification scheme SA8000 transitioned from survey every industry sector had a reporting 40 In March 2016, SASB going beyond certifying compliance with the law, rate of 60 percent or greater. The GRI and released provisional standards for 79 or with the prevailing industry wage, to certifying the SASB have also developed comprehensive industries (SASB whether workers were being paid a wage that industry and sectoral guidelines and tools.40 2017b).
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The financial services sector and investment Box 1.1. Impact Reporting and Investment community have become major players in pro Standards (IRIS) moting sustainability disclosure and reporting.
According to the 2018 Responsible Investing Since 2009 IRIS has been managed and Survey, “...institutional investors and consultants developed by the non-profit Global Impact have shifted decisively from asking whether Investing Network (GIIN) with a mission to to adopt ESG principles, to looking at how to support impact investment measurements and therefore credibility, transparency and implement them” (Brown 2018). And their accountability to stakeholders. IRIS is a free methods have evolved considerably, shifting from public good enabling organizations (investors, an early focus on negative screening which would foundations, funds and other impact entities) to track investment performance. Users select shun companies associated with sectors such as those IRIS metrics most germane to their tobacco, gambling and alcohol, to positive ESG activities. IRIS metrics work with major standards performance as a determinant of risk (RBC regarding impact measurement, including those of the ILO and GRI as well as International GAM 2018; Beal et al. 2017). Financial Reporting Standards.
The growing interest in impact investing has Using an open process encompassing existing spurred the development of a far more compre third party standards, expert working group feedback and public feedback, metrics are hensive range of metrics to guide organizations developed for the IRIS catalogue. The IRIS in reporting on their social, environmental catalogue includes both qualitative and and economic impacts, and to assist investors quantitative metrics for the following areas: financial performance (current assets and interested in sustainability to decide with whom financial liabilities); operational performance to invest. Over 5,000 organizations employ the (metrics to assess investees’ governance Impact Reporting and Investment Standards policies and employment practices); product performance; sector performance; and social and (IRIS) to analyse, manage and report their envi environmental objective performance. ronmental and social performance.
Source: See: https://iris.thegiin.org/standards/; The CR field also expanded as the focus of https://iris.thegiin.org/metrics/ interest broadened beyond the corporation and its subsidiaries to the suppliers in its value chain. Value chain analysis had highlighted the com plexity and depth of contemporary industrial in 2017 to link its carbon reduction strategy to structures and production systems (Gereffi and science-based targets (SBTs) and to cut carbon Kaplinsky 2001). Corporations realized that risk emissions by 20 percent by 2035 and by half by management required far more rigorous systems 2050. At the 24th Conference of the Parties to to monitor and certify enterprises in their supply the United Nations Framework Convention on chain. As demands for sustainability reporting Climate Change (UNFCCC), or COP 24, held 41 See Joint statement between institutional grew, the net expanded beyond large corporations in 2018, Shell announced it would extend the investors on behalf of and their affiliates to capture their supply chains reduction strategy beyond more direct emissions Climate Action 100+ and Royal Dutch Shell and small and medium-sized enterprises (SMEs) (Scope 1 and 2) to upstream and downstream plc (Shell). Accessed more generally. segments of the value chain (Scope 3), and 20 April 2020. https://www.shell. link executive pay to compliance with carbon 41 com/media/news-and- Often supply chain disclosure has remained con reduction targets. The Spanish oil group media-releases/2018/ fined to top tier suppliers and not been extended Repsol has gone further by setting a net-zero joint-statement-between- institutional-investors-on- to enterprises and raw material suppliers further CO2 emissions target for 2050 which, inter alia, behalf-of-climate-action- down the supply chain. Pressures are building, takes into account emissions associated with its and-shell.html however, for a more encompassing approach. customers.42 42 See Financial Times. Repsol sets net-zero CO2 emissions target for 2050. In the current context of heightened awareness In December 2018, the confectionary corpo 19 December 2019. Accessed 20 April 2020. of global warming and poverty, some large ration Mars also ratcheted up its “Sustainable https://www.ft.com/ corporations are announcing what on paper in a Generation” strategy, introducing a Cocoa content/90f49a98- are ambitious policies and targets that factor in for Generations plan that seeks to go beyond 1528-11ea-8d73- 6303645ac406 the supply chain. Shell, for example, committed certification and specific environmental and
40 CORPORATE SUSTAINABILITY ACCOUNTING: WHAT CAN AND SHOULD CORPORATIONS BE DOING?
social initiatives to more direct and tangible principles. Consequently, reporting and certifi economic benefits for the company’s nearly cation guidelines are periodically revised. Criteria 180,000 cocoa producers. Under the plan Mars noted by the SASB, for example, are listed in aims to have 100 percent of its cocoa from the Annex 2. Responsible Cocoa programme responsibly sourced globally, and traceable by 2025. Addi The world’s most commonly used reporting tionally it will attempt to raise farmers’ incomes tool, the GRI framework, has been modified by extending the current focus on fair trade, (see Box 1.2) to emphasize new issues and to protecting children and preserving forests to improve aspects related to accounting principles raising productivity, diversifying incomes and such as user-friendliness and materiality. empowering women and communities.43 This strategy complements existing ambitious goals “Integrated reporting” constitutes another sig related to emissions: nificant development in CR disclosure and When we established a formal, global reporting. This form of reporting manifests itself, sustainability team in 2007, we decided however, in very different guises. A minimalist that we would rely on science to guide version simply calls for ESG and financial our GHG emissions reductions. At that disclosure to be combined in one report. This time, we only had good data for Scope 1 format is supposed to signal a commitment to and 2 emissions, so we set an initial goal principles of full disclosure and materiality, sug for our direct operations—recognizing gesting that ESG is not merely an add-on to the that was where we had the most control financial dimension. Some 78 percent of the and influence. Anticipating that working world’s largest 250 corporations included CR beyond our factories and offices would information in their annual financial reports in likely be more challenging than our own 2017, up from 44 percent in 2011 (KPMG 2017). operations, we decided to over-deliver 43 See “Mars launches new sustainability against what the science said was necessary A more rigorous interpretation is promoted by strategy.” Accessed 15 in our direct operations—leading to our the International Integrated Reporting Council June 2020. https://www.mars.com/ goal of 100 percent renewable emissions (IIRC) and sees integrated reporting as key news-and-stories/ by 2040 (Kevin Rabinovitch, Global Vice to the process of assessing current and future press-releases/cocoa- President of Sustainability, Mars).44 value creation and “market value”, as opposed sustainability-strategy to “book value”.45 The frame of reference for 44 Interviewed by The Climate Group. While generally viewed in a positive light, the determining materiality is an organization’s Accessed 15 June 2020. ratcheting up of standards reinforced concerns “value creation process”. This process is affected https://www.theclimate group.org/news/kevin- about the growing complexity and cost of ESG by the organization’s use of multiple factors (or rabinovitch-mars-every- disclosure and reporting. Issues of fairness also “capitals”)—financial, social and relationship, movement-needs-group- arose where SMEs, particularly in developing human, manufactured, intellectual and natural. first-movers-and-we- believed-we-had countries, not only confronted additional costs It is also impacted by the creation of opportunities 45 According to SASB: and non-tariff barriers to trade but also found and risks as well as favourable and unfavourable “Market value typically themselves in a situation where transnational performance (or prospects), as ascertained by the differs from book value, in part, because corporations were finding ways to transfer the financial provider (Barman 2018:295-296). traditional financial costs of disclosure downstream. Furthermore, statements do not necessarily capture lead corporations in global value chains often According to the IIRC, an integrated report all of the factors insisted that suppliers raise standards in an on- differs from conventional financial reporting that contribute to a going context of aggressive commercial policy not only in its inclusion of non-financial infor company’s long-term ability to create value. that implied tights margins and short lead times mation, but also in its focus on the ability of a Much of this “value for suppliers (Blasi and Bair 2019; Utting 2012). firm to create value in the short, medium and gap” is attributable to, or can be significantly long term, emphasizing simultaneously the impaired by, the Third, reporting and certification guidelines need for strategic focus, conciseness, future management or mismanagement of have been ratcheted up. As examined more fully orientation, connectivity of information and environmental, social, in Chapter 2, the field of disclosure has been multiple capitals and their interdependencies. and human capitals as well as corporate mired in concerns regarding the quality of data It is underpinned by the concept of “integrated governance” (SASB and the lack of adherence to basic accounting thinking”, which accounts for connectivity 2017a:4).
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between capitals the firm uses or impacts, the The International Integrated Reporting—or ability to respond to stakeholders, how the
Box 1.2. GRI Sustainability Reporting Guidelines: What has changed over time?
First global framework for comprehensive sustainability reporting, comprising Principles for determining report content and Standard Disclosures comprised of performance G1 (2000) indicators; Indicator Protocols for each performance indicator to guide reporters; Sector Supplements for use in addition to the Guidelines; Technical Protocols to help reporters set reporting boundaries and other issues.
GRI Content Index added as a user-friendly tool to gauge if organizations have dealt with G2 (2002) individual disclosures fully, partially or not at all; Sustainability Context Principle adopted.
Greater focus on the Materiality Principle; G3 Checklist to better understand Indicator Protocols and enhance transparency; reporters now required to identify data points provided and explain omissions; Application Levels (A, B, C) system introduced to signal extent to which GRI framework has been applied; the symbol “+” indicates external G3.0 (2006) assurance.
Indicator Protocol sets are: Economic, Environment, Product Responsibility, Labor Practices and Decent Work, Human Rights, Society.
Provides expanded guidance on reporting gender, local community and human rights- G3.1 (2011) related impacts and performance.
New indicators and up-to-date disclosures on governance, ethics and integrity, supply chain, anti-corruption and energy and GHG emissions; three Application Levels replaced with two-level “in accordance” options: Core and Comprehensive, both focused on material aspects and requiring reports to address all requirements for G4 (2013) relevant topic-specific disclosures or justify omission; suggests impact assessment to gain understanding of the sustainability context; ‘Boundary’ setting now must look at underlying impacts down the supply chain; generic set of disclosures on Management Approach related to stakeholder dialogue and materiality; flexibility for preparers to choose the report focus and to combine with local and regional reporting requirements and frameworks; guidance on connecting sustainability reporting and integrated reporting.
G4 Guidelines and Implementation Manual incorporated into a set of interrelated modular Sustainable Reporting Standards for greater flexibility, simpler language and Sustainability clearer requirements; organizations reporting “in accordance” will use three Universal Reporting Standards and select from 33 topic-specific Standards; reporters can include additional Standards disclosures from frameworks like SASB to report their material topics; greater emphasis (2016) on materiality to meet stakeholder expectations; “Impact” is defined as positive and negative effects of an entity on the environment, economy and society.
Sources: GRI: www.globalreporting.org https://corporate-citizenship.com/2013/05/23/global-reporting-initiative-g4-guidelines-a-five-minute-guide/ Bloom 2016 46 This section draws on Epstein and Rejac Buhovac 2014 material posted at https://www.globalreporting.org/information/news-and-press-center/Pages/Application-Levels-all-you-need-to-know.aspx integratedreporting.org
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sets Guiding Principles and Content Elements half of these were connected to the production to govern the general content of an integrated of raw materials (Elkington and Zeitz 2014:66). report and explains their underpinning con Following this revelatory analysis, PUMA’s cepts. Material matters are those that could parent company, Kering, went on to develop substantively impact the organization’s ability EP&L accounts for its other brands such as to create value. Reporters using the framework Gucci. must also provide feedback on the quality of stakeholder engagement. Fourth, a major aspect of institutionalization relates to third-party verification and assurance, Recent thinking on integrated reporting adds which has been a key aspect of the shift from the another dimension whereby “integration” “tell me” to the “prove it” approach mentioned refers to measuring performance (and value above. At the core of this development are nu creation or destruction) in relation to not only merous certification and assurance processes multiple capitals (economic, social, natural, associated with the four major accounting firms human and so forth) but also the sustainability (Deloitte, Ernst and Young, KPMG and PwC), context. Accordingly, “a genuinely integrative think tanks and multistakeholder initiatives (see performance measurement process [is one Table 1.1). These include the AA1000 Assurance where] all areas of impact are subjected to the Standard and certification schemes associated establishment of sustainability norms” mani with ISO 14001 (environmental management), fested in concrete long-term targets, an approach SA8000 (labour standards), FSC (forestry), discussed in Chapter 3 below (Thomas and MSC (fisheries), GlobalGap (food industry), fair McElroy 2016:155). trade certification, the Gold Standard (carbon emissions), the Kimberly Process (diamonds) and Some initiatives are under way that emphasize the various commodity Roundtables (Sustainable impact valuation in terms of monetization Palm Oil, Biofuels, Soy, Aquaculture).47 Among (Epstein and Buhovac 2014). This focus extends the global top 250 companies, assurance of cost-benefit accounting beyond conventional CR reporting increased from 30 percent to 67 financial metrics with the aim of tracking im percent between 2005 and 2017, “indicating that pacts associated with multiple capitals and the largest companies see value in promoting the externalities, as well as enhancing transparency reliability of this information” (KPMG 2017:4). and accountability in decisions governing the use of resources (van der Lugt 2018). Fifth, the institutionalization of corporate sustainability also involves rating or ranking The first analysis to determine the net costs companies’ sustainability performance in of a firm’s environmental impacts along the order to evaluate companies comparatively. whole supply chain was done by Trucost and The Global Initiative for Sustainability Ratings PwC for sportswear company PUMA’s 2011 identifies over 600 ESG ratings products globally Environmental Profit and Loss Account (EP&L) (SustainAbility 2018). Prominent ratings schemes (Kareiva et al. 2014). Trucost helps firms quantify include, for example, the Dow Jones Sustainability and price natural capital dependency so that Index (DJSI), FTSE4Good, Sustainalytics ESG they can better understand environmental Ratings, RobecoSAM’s Corporate Sustainability risks. According to Trucost’s CEO, “natural Assessment, CDP environmental performance capital accounting can be used by companies scores, MSCI ESG Ratings, issue-oriented to assess natural capital risk and opportunity ratings like CDP Water, EcoVadis sustainability embedded within their operations and supply scorecards, Corporate Knights Global 100 Most 47 See Reed et al. (2012) chains” (Elkington and Zeitz 2014:65). PUMA’s Sustainable Corporations in the World, and the and Utting (2012). EP&L assessment revealed that the company’s Corporate Human Rights Benchmark. Sector- 48 The Green Rating environmental impacts should have been oriented ratings, sometimes operated by NGOs, Project scores and ranks companies in priced at EUR 145 million in 2010—about half also assess progress—the case, for example, of the six sectors: thermal of that year’s profits. PUMA also learned that Centre for Science and Environment Green power, iron and steel, 48 cement, automobiles, the supply chain was behind 94 percent of the Rating Project in India or Oxfam’s Behind the chlor-alkali, and pulp company’s environmental impacts, and that over Brands Scorecard (see Box 1.3 and Annex 3). and paper.
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Box 1.3. Oxfam’s Behind the Brands Scorecard
“What are the top 10 food and beverage companies doing to clean up their supply chains?” By developing a scorecard, this initiative seeks to provide people who buy their products with the information they need to hold the Big 10 accountable for what happens in their supply chains.
Performance is assessed in relation to seven themes: • Transparency at a corporate level • Women farm workers and small-scale producers in the supply chain • Workers on farms in the supply chain • Farmers (small-scale) growing the commodities • Land, both rights and access to land and sustainable use of it • Water, both rights and access to water resources and sustainable use of it • Climate, both relating to reducing greenhouse gas emissions and helping farmers adapt to climate change
Except for transparency, all themes are grouped into four indicator categories (each worth one quarter of the score available for that theme). These indicator categories rely on publicly available documents to address the following questions: • Awareness: Does the company demonstrate general awareness of key issues relating to that theme and does it conduct projects to understand and address these key issues? • Knowledge: Does the company demonstrate that it measures, assesses and reports key issues and facts specifically in its supply chains that relate to that theme? • Commitments: Does the company commit to addressing key issues relating to that theme in its supply chains? • Supply chain management: Does the company require its suppliers to meet relevant standards related to that theme?
The transparency theme is structured differently. It has a broader focus and rewards companies for disclosure on cross-cutting and corporate-level issues.
Companies are ranked from 0 to 10 in relation to each of the seven themes. The thematic scores for each company are then tallied to provide an overall company score.
Oxfam points out that various policies and practices of companies are not assessed, including critical issues such as nutrition. Other issues that could not be assessed include actual practices on farms, and exactly how the Big 10, in practice, use their power to shape the behaviour of their suppliers. Such issues were not included because: (i) a particular issue was not linked closely enough to the lives of small-scale farmers, farm workers and communities in the supply chains of the Big 10; (ii) of the inability to find indicators that could assess the issue adequately through use of publicly available information; or (iii) public information available was not of adequate quality and accuracy for Oxfam to assess companies.
Source: https://www.behindthebrands.org/about/
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Best practice learning
Much of the impetus for ratcheting up CR comes • PUMA (sportswear): ambitious net- from a relatively small group of corporations zero emissions strategy and targets that are seen as leaders in this field. The intense extending to the supply chain, and networking and peer pressure that is part of application of rigorous sustainability the CR ecosystem ensures that firm-specific accounting methods. innovations can quickly gain kudos and serve • Unilever (household consumer as a source of inspiration and peer pressure for products): Responsible Sourcing others. These best practices provide proof that Policy; commitment to make key emerging issues are not only relevant and all of the company’s plastic material but also actionable. The CR literature packaging fully reusable, frequently identifies the same companies and recyclable, or compostable by initiatives as examples of best practice.49 These 2025 and to increase the use of include: recycled plastic content in its • Danone (food products): engagement packaging to at least 25 percent with the social business initiatives by 2025 (Beal et al. 2017:26). associated with the micro-credit bank Grameen; pioneer in relation to Relatively few companies, however, consistently international framework agreements rank at the top of ratings. The DJSI, for (labour rights). example, reported in 2015 that of the many • Google (Internet-related products assessed, only 16 companies had consistently and services): has already reached its remained in the Index. The GlobeScan/ 100 percent renewable energy target; Sustainability 2018 survey of experts positions now pursuing a strategy to adopt Unilever, Patagonia and Interface in the technologies to power its operations top three slots followed by IKEA, Marks & and data centres with renewable Spencer, Tesla, Nestlé, Natura, Danone, Apple energy on a 24/7 basis. and Walmart.51 • Interface (carpet manufacturing): 49 This is not to suggest that these companies proactive application of circular This outline of the evolution of disclosure and are acting ethically economy principles and practices and reporting suggests a significant change in cor or sustainably on all fronts. Indeed, several zero footprint, renewable energy and porate discourse and policy in recent decades. have been criticized recycling goals. Over time, attitudes have shifted from outright for poor performance • Levi Strauss (apparel): one of the first denial of responsibility, through piecemeal self- or embellishing accomplishments in companies to set science-based targets regulation associated with bolstering corporate specific issue areas. in the supply chain, with a target of a legitimacy and aspects of risk and reputation See, for example, Oxfam (2016) Behind 90 percent reduction in greenhouse management, to a more comprehensive ap the Brands ranking of gas emissions in all its facilities using proach that is garnering considerable buy-in Danone, or the New Internationalist report onsite renewable energy and efficiency from transnational corporations and other com on Unilever (Dupont- improvements and a 40 percent GHG panies and is being actively promoted by an ever- Nivet et al. 2017). 50 reduction in the supply chain by 2025. expanding network of organizations engaged 50 https://sustainable • Natura & Co. (cosmetics and personal in standard-setting, promotional and oversight brands.com/read/ leadership/levi-strauss- care): has pushed boundaries related activities. sets-industry-bar-with- to its lifecycle business approach across science-based-targets-for- global-supply-chain the value chain, promoting sustainable As examined in Chapter 2, this evolution 51 Respondents were practices related to raw materials continues into the present with attempts to asked to determine extraction, manufacturing, distribution, strengthen not only the breadth of disclosure how well leading use and disposal of its products. but also its depth. Numerous adjustments and companies perform against each of • Novo Nordisk (pharmaceuticals): pay innovations are taking place to address various five key leadership equity within the firm. limitations in the quality of reporting which con attributes—Purpose, Plan, Culture, • Patagonia (apparel): a leader not only tradict basic accounting principles associated Collaboration and in sustainable design and marketing with reliability, credibility, comparability, user- Advocacy. See GlobeScan and but also environmental activism. friendliness, relevance and materiality. Sustainability (2018).
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CHAPTER 2 Where Do We Stand?
“ “ ...to read most accounting The real danger is when and finance publications... politicians and CEOs are you could be forgiven for making it look like real believing that never has action is happening, when in capitalism been so robust fact almost nothing is being or the prospects for the joy done, apart from clever and fulfilment of mankind accounting and creative PR. so positive. You would find yourself wondering Greta Thunberg, COP25, 2019 just who perpetrates all this angst about the power of [multinational The preceding overview of the evolution of cor corporations], the abdication porate sustainability disclosure and reporting of governments, the rates certainly indicates an intensification of dis of species extinction, closure activity in the name of sustainability. It the growth in ecological is likewise clear that many of the key problems footprints, the rate of child in sustainability reporting identified years ago deaths through drought and stubbornly remain. The more salient challenges so on. continue to entail (i) reporting complexity that Rob Gray (2006:5) confuses and distracts from measuring impact and easy comprehension; (ii) a lack of data comparability and standardization to support useful evaluation; (iii) imprecise materiality
46 CORPORATE SUSTAINABILITY ACCOUNTING: WHAT CAN AND SHOULD CORPORATIONS BE DOING?
determination leading to low-quality disclosure to streamline reporting, and in 2018 produced and uninformed stakeholders; and (iv) relia a set of 33 core indicators related to the SDGs bility and credibility problems undermining (UNCTAD 2018). The issue of the number of confidence in the sustainability reporting indicators is not easily resolved, however; while process itself. This chapter takes a closer look too many can overwhelm readers and obscure at these accounting issues and describes several critical issues, too few can leave out key issues mainstream responses to enhance the quality of (Korosec 2012). disclosure. Given that ratings themselves encompass more issues than ever before, the burden on usually Accounting issues small reporting departments can be significant. From addressing complicated reporting demands Complexity to filling out unsolicited questionnaires from multiple ratings organizations, those involved in reporting must deal with sometimes byzantine and therefore time-consuming processes. The Not only are“ these reports World Business Council for Sustainable Devel a lot of work, but their opment (WBCSD) confirms that many reporters complexity makes them find it difficult to meet a ballooning number of inaccessible to most disclosure elements in a rigorous manner while people. Several firms also engaging substantively with more diverse attempt to function as a stakeholders.52 SustainAbility’s research echoes go-between, summing up these findings: “while more data may improve these disclosures into easily analysis, the growing requests put additional de digestible sustainability mands on companies. Many surveys are issued at ratings and rankings. But the same time of year; taken together, they can the broadness of the ESG represent thousands of hours of response time, spectrum makes these often overwhelming corporate sustainability, IR ratings nearly meaningless. and communications teams” (2018:6). In addi tion, sustainability reporters must keep up with Tim Mohin 2014 a field that is far from static.
Perhaps one of the most detrimental aspects The ever-expanding number of frameworks, of the current reporting milieu is the question standards and metrics available to guide disclo of how much multiple and complex reporting sure and reporting, coupled with the proliferation demands detract from a firm’s ability to make of ratings tools, has resulted in a crowded, an actual sustainable impact. In measuring complex and confusing reporting landscape indiscriminately, critical issues may be hidden (Korosec 2012). If indicators and indices are or lost. Cuff and Murray (2017:3) note that GRI intended to help simplify complex material for and WBCSD leadership agree that “CSR has both specialists and non-specialists (Morse and ushered in a highly complex world of reporting Bell 2018:6), then reporter feedback suggests that and standards, that often leaves companies when it comes to sustainability disclosure, there that are genuinely trying to do the right thing can indeed be too much of a good thing. confused about how best to proceed. Worse still, there is a risk some firms focus more on getting Various institutions have attempted to the reporting right and delivering incremental streamline disclosure requirements either by improvements in their metrics, as opposed giving companies more leeway to determine to embracing the shifts in their core business what is material or limiting the number of models that are required to become truly indicators. The World Federation of Exchanges, sustainable operations”. Certainly, a crowded, for example, lists just 30 ESG metrics and complex and confusing landscape does not indicators (see Annex 7). The United Nations bode well for reporting clarity; nor does a lack Conference on Trade and Development of comparability and standardization to which (UNCTAD) has long been engaged in efforts we now turn. 52 See WBCSD 2017.
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Comparability Even when there were fewer sustainability indices and ratings agencies, the inability to make meaningful comparisons hindered the ability of In an increasingly global firms to meet the information requirements “ of investors in the field of socially responsible marketplace, comparability is important. Reporting investing (Escrig-Olmedo et al. 2010). According requirements have evolved to PwC (2016), while 60 percent of corporate separately, and differently, reporters believe their disclosures allow investors in various jurisdictions. This to compare companies, 92 percent of investors has increased reporting disagree (cited in D’Aquila 2018). Moreover, and administrative burden when asked their opinion on the quality of for the growing number of sustainability reporting, 71 percent of investors organizations that report in stated that they were not confident about the more than one jurisdiction. It quality. SASB (2017b) notes that “...achieving has also resulted in diverging the objectives of the PRI or other desired disclosure practices that sustainable investment goals is hindered by a inhibit investors and others lack of comparable, decision-useful data and from understanding and information about [sustainability] issues. Even 53 These include investors comparing the information when such information is available, culling it making “small deals”, they need for decision- from current reports can require substantial development finance institutions involved in making. time and expense for investors”. “blended finance” and public capital markets IIRC 2011:5 As D’Acquila (2018) suggests, the inability to (Macmillan and Eccles 2019). make effective comparisons across firms may 54 Two subsequent be worsened by differences in how companies stages noted by and investors regard sustainability itself. En these authors are (i) engagement with The inability to compare a company’s perfor twined with issues concerning complexity and appropriate regulators mance over time and against industry peers comparability are challenges at the heart of to get feedback on the efficacy precludes meaningful assessment. Covering the sustainability metrics issue, namely, what and practicality of the broad range of CR issues, metrics are rarely exactly we should be measuring. standards, and (ii) presented in a way that enables easy comparisons regulatory support involving clearer rules between companies. For sustainability infor Relevance and materiality and regulations. mation to be useful to stakeholders and In addition to overly complex and demanding 55 According to the GRI, investors, reports need to be easily comparable reporting requirements and a pronounced lack materiality looks at the impacts of the over time and between organizations; however, of comparability of corporate performance over company on the comparing sustainability reports has become time and across sectors, the determination world around it and unwieldy and laborious. Indeed, lack of of materiality arguably presents the greatest relevance for multiple stakeholders. For standardization and comparability is a long- challenge for crafting frameworks, tools and SASB, materiality standing issue in sustainability disclosure and metrics conducive to assessing and promoting focuses on how sustainability topics reporting. progress in relation to sustainable and inclu affect a firm’s sive development. While definitions of mate financial or operating 55 performance and Referring to the field of impact investing, riality vary (which in turn is a source of con relevance for Macmillan and Eccles (2019) make the point fusion), here we take the term to imply that: investors. The focus of the Climate that “[d]eveloping rigorous standards...will (i) information and data are relevant from the Disclosure Standards be challenging since it involves stakeholders perspective of assessing performance and progress Board (CDSB) is who are members of different ‘tribes’. ... Each related to sustainable development; (ii) there is natural capital and equally looks at how tribe has its own world view and language a need to prioritize sustainability issues and a company impacts system, often using the same word to mean indicators according to their relevance; (iii) the the environment 53 and how the many different things”. The first step towards information must be useful for informing key environment affects standardization, these researchers argue, is stakeholders concerned with, or impacted by, the organization. See http://www.ethicalcorp. for all the tribes to “come together to agree corporate activities; and (iv) the omission of com/demystifying- to the necessary standards and data reporting information could alter their decision making alphabet-soup-reporting- 54 frameworks infrastructure as a public good”. and preferences.
48 CORPORATE SUSTAINABILITY ACCOUNTING: WHAT CAN AND SHOULD CORPORATIONS BE DOING?
Immaterial clutter Many company reports contain vague infor An ongoing concern relates to the presence mation as opposed to meaningful indicators. and volume of “immaterial clutter” in For example, a company may disclose that it company reports, be they stand-alone is committed to use renewable energy, but environmental or CSR reports or integrated this says nothing about the proportion of annual reports. The findings and cautionary total energy use accounted for by renewables. comments of the ASB/FRC in their 2009 Or a sustainability report might note that a review of the quality of narrative reporting in firm has projects supporting women farmers, annual reports of 50 UK listed companies56 which leaves us uninformed about the scale remain pertinent today. The review observes and impact of support and any concrete that despite some clear improvements in implications for women’s empowerment. reporting across multiple content areas, “we found immaterial clutter detracting from In their work on sustainability reporting by important information most frequently in large Italian water utilities,57 Cantele, Tsalis and the corporate social responsibility (CSR) Nikolau (2018) not only observe a low level of and risk reporting sections of the narrative” disclosure on indicators suggested by GRI and (ASB/FRC 2009:3). By way of example, the SASB, but also reveal that most companies dis ASB/FRC review notes: close qualitatively, neglecting material aspects re ...some [reports] have fallen into the lated to water management like effluent quality, trap of delivering unnecessary clutter end-use efficiency, water protection initiatives, such as ‘football coaching’ for an customer complaints, and sources of water. The insurance company and ‘donating authors contend that in addition to the typically chocolate gifts to the community at poor quality of disclosed information, only Easter’ for a service company—these a minority of firms provide the information are worthwhile activities but in our essential to understanding their impacts on the view are not material to understanding crucial resource they manage. What they do a company’s performance and position disclose “cannot be used to assess the process (ASB/FRC 2009:9). of water utilities performance in various aspects of sustainability and evaluate the effectiveness Various factors underpin the volume of im of their sustainability strategies” (Cantele, Tsalis material clutter. These include: and Nikolau 2018:8). • The tendency for corporations to project a favourable societal image Such limitations clearly affect the usefulness by highlighting philanthropic and of data. So too does the fact that many firms other do-gooding activities that may and ratings provide data in the form of annual be insignificant from the perspective snapshots, that is, information related to corpo of sustainability performance or rate activities and impacts during the financial company activities. or calendar year under review. Changes in • The easy option of providing relation to the previous year may also be noted. anecdotal evidence in the absence Such formats, however, undermine what is of concrete performance data. essential for assessing corporate sustainability 56 The Accounting • The ever-growing array of social performance, namely trend analysis. Accounting Standards Board pressures and reporting requirements. principles related to easy comprehension or (ASB) is an operating body of the Financial “We must consider whether further user-friendliness require far more attention to Reporting Council reporting requirements in the multiyear trends of, say, five or 10 years. (FRC). The FRC is the United Kingdom’s business review will succeed in independent regulator changing company behaviour or just Ongoing gaps and blind spots tasked with promoting in adding clutter to an already lengthy Various assessments of the state of disclosure confidence in corporate reporting annual report” (ASB/FRC 2009:12); and reporting identify ongoing gaps in issue and governance. • The preference for “listing every areas that need to be addressed. The following 57 The 22 utilities conceivable risk adds to clutter” were among those noted in several of the publi are considered large according to (ASB/FRC 2009:9). cations reviewed for this report. GRI’s reporting list classification criteria.
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An EcoVadis analysis of 20,000 companies EcoAct (2018) notes that just 35 percent of in 100 countries finds that most companies the corporations it monitored were assessed are “taking a reactive, unstructured approach as adapting to a more circular economy58, to fighting corruption risks” with 48 percent while only 29 percent considered the natural having a formal policy on corruption, 37 percent capital impact of their operations. EcoAct’s having corruption measures in place, and just 9 (2018) assessment of the state of environmental percent reporting on ethics issues and 3 percent reporting of large corporations listed on several with sanctions (EcoVadis 2018). stock exchanges, including the FTSE 100, Dow 30, CAC 40 and IBEX 35, shows that The Corporate Human Rights Benchmark that while an increasing number are setting carbon ranks 98 of the world’s largest corporations in reduction targets, relatively few do so with three sectors notes that while the UN Principles reference to “science-based targets”—that is, on Business and Human Rights placed this issue ones that are consistent with the goal of keeping on the agenda, it is still at an incipient stage in global warming at or below 2 degrees Celsius. terms of corporate uptake (CHRB 2018). Furthermore, of the 20 percent with science- based targets, only 8 percent are independently Oxfam’s Behind the Brands scorecard for the assessed and approved. KPMG notes that world’s 10 largest food and beverage corporations carbon targets set by corporations are usually reveals disconnected from international and national “that the social responsibility and sustain carbon reduction goals (KPMG 2017) and that 58 In contrast to ability programs which companies have its “survey confirms that a majority of companies industrial processes implemented to date are typically focused do not acknowledge climate change as a financial and production methods based on projects to reduce water use or to train risk in their annual reports” (KPMG 2017:4). on the continuous women farmers, for example. But these extraction of finite natural resources, programs fail to address the root causes of More specifically, in the field of renewable the generation of hunger and poverty because companies energy, RE100 (2018:6) points out that even waste and pollution, energy leakage and lack adequate policies to guide their among companies committed to significantly the degradation of own supply chain operations. Important reducing carbon emissions (such as those natural ecosystems, policy gaps include: reporting to the CDP, discussed below), “only the concept of circular economy emphasizes • Companies are overly secre 11% of the power [they] consumed was actively the need to support tive about their agricultural sourced from renewable sources”. a regenerative economy, minimizing supply chains, making claims or reversing these of “sustainability” and “social In a review of 124 CSR reports, Littler (2014:10) impacts through such means as “closed- responsibility” difficult to notes “only 23 (19%)...gave any account at all loop systems” and verify; of their approach to taxation. Only five of “dematerialization” • involving eco- None of the Big 10 have those 23—4% of the total—provided anything efficiency, mainte adequate policies to protect like a quantitative analysis. The rest gave only a nance, repair, reuse, local communities from land vague assurance that the business was proactive remanufacturing, refurbishing, retro and water grabs along their in providing responsible tax planning, without fitting, recycling and supply chains; and including any facts or figures at all”. upcycling, among other approaches. • Companies are not See, for example, Ellen taking sufficient steps to While there are increasing calls for the remu MacArthur Foundation (2013). curb massive agricultural neration issue to go beyond ensuring firms pay greenhouse gas emissions at least a minimum wage by instead paying a 59 See H&M, Fair Living Wages: What did we responsible for climate “living wage”, progress has been limited. H&M’s promise and what changes now affecting commitment to a living wage, noted above, has progress have we made? 7 May 2018. farmers” (Oxfam 2016). come in for considerable criticism. While the Accessed 15 June 2020. company asserts progress has been achieved https://hmgroup. com/media/news/ Oxfam also notes that of the 10 corporations indirectly through their insistence that supplier general-news-2018/ in this review only one, Nestlé, discloses data factories allow workers to have democratically fair-living-wages--what- did-we-promise-and-what- on the ratio of CEO to median worker’s pay elected representatives and adopt transparent 59 progress-have-we.html (Oxfam 2016). wage management systems, various monitoring
50 CORPORATE SUSTAINABILITY ACCOUNTING: WHAT CAN AND SHOULD CORPORATIONS BE DOING?
and advocacy organizations60 claim that the 5% set procurement and/or percentage concrete results pale in comparison with the spend targets with women-owned reputational gain the company achieved when enterprises it announced this “unique, first-of-its-kind 15% set goals to build the pipeline of initiative”.61 women for management positions 10% assess differential impacts on men When corporate sustainability disclosure or and women during human rights standard-setting organizations do factor in the or social impact assessments living wage, there is often a tendency to adopt 16% ensure equal participation of women a narrow interpretation by focusing on an 60 and men in community consultations See, for example, Clean enhanced minimum wage, restricting the basket Clothes Campaign 2018 23% seek to challenge gender norms and “Campaign Launch: of “basic needs”, or assuming that there is more Turn Around H&M” than one income earner per family. Other more promote positive images of women https://cleanclothes.org/ and girls in marketing news/2018/04/30/campaign- expansive criteria tend to be neglected: a larger launch-turn-around-h-m basket of basic needs, that the living wage should 30% set time-bound, measurable goals 61 See http://about.hm.com be earned during a normal working week, that and targets in strategy /en/sustainability/sustain family basic needs should be covered by the 32% have an organization-wide gender able-fashion/wages.html wage worker in question, and that the worker/ equality strategy 62 The Women’s Empowerment Principles family in question should have the possibility to 45% have a policy addressing equal pay Gap Analysis Tool (WEPs save (Anker 2011). Tool) was developed in for equal work of equal value 2017 to provide businesses 49% provide confidential grievance, with a user-friendly and If corporations engaged in sustainability dis confidential self-assessment resolution and non-retaliation closure have begun to look beyond their own of their performance on mechanisms to ensure an women’s empowerment and facilities to those of top tier suppliers, the same is environment free of violence, gender equality. The WEPs often not the case for suppliers further down the Tool is composed of 18 harassment and sexual exploitation multiple choice questions value chain. Even among a group of companies in the areas of leadership, engaged with the Decent Work in Global Supply workplace, marketplace and community. Each Chains Action Platform, developed by the UN The fast pace of technological change is gen question is organized Global Compact in 2017, only 53 percent map erating new issue areas or problems that need across four management stages—commitment, their suppliers beyond Tier 1 (UNGC 2018). to be factored into sustainability disclosure and implementation, Less than half (47 percent) require major busi reporting, for example, the socio-psychological measurement and ness partners to have anti-discrimination policies. impacts on children and others of social transparency—to ensure pledges are coupled with media, increasing emissions associated with the substantive action to An assessment of a group of companies using transport sector due to online shopping, and implement the WEPs. Topics include company-wide the Women’s Empowerment Principles Gender employment issues (including work transition) gender equality strategies, Gap Analysis Tool62 revealed that only 12 percent associated with green economy transitions equal pay, recruitment, supporting parents and include gender equality criteria in their supply and artificial intelligence, automation and caregivers, women’s health, chain management tools. There are also gaps in robotics.63 prevention and response to violence and harassment, other aspects related to gender equality. While gender-responsive sourcing, some 1,800 CEOs have formally committed to SDG gaps are also apparent. While large and advocacy for gender continuous leadership and improvement on corporations increasingly acknowledge the equality in communities of operation. See UNGC et gender equality and women’s empowerment by SDGs, action often relates to only a few goals. al. (2018) and https://weps- signing the CEO Statement of Support for the An analysis of SDG uptake within the field of gapanalysis.org/resources/# Women’s Empowerment Principles launched impact investing found that investors tended 63 For a comprehensive analysis of challenges in 2010, even leading companies in this field to focus on a limited range of issues: first and associated with the future of appear to be failing in various respects. The 2018 foremost, decent work/economic growth work see Global Commission Women’s Empowerment Principles Global Trends (SDG 8), followed by climate action (13), on the Future of Work 2019 https://www.ilo.org/global/ Report (UNGC et al. 2018) finds that among a then sustainable cities/communities (11) and topics/future-of-work/ group of 100 companies that applied the tool global health and well-being (3). Relatively few WCMS_578759/lang--en/ index.htm early on, a majority reported progress related engaged with goals associated with education 64 64 This is despite the fact that to maternity and paternity leave, as well as (4), inequalities (including gender) (5 and 10) , impact investors identify efforts to embed gender in CSR, philanthropy, peace/justice/strong institutions (16), life on “women and girls” as a key beneficiary group (see GIIN advocacy and partnerships. Progress in other land and below water (14, 15), and partnerships 2017, Figure IV, Executive areas, however, was far less apparent: for development (17) (GIIN 2017). Summary).
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Reliability and credibility
...indicators...are“ simplifying tools designed to capture ...[B]y and large,“ companies complexity and help convey continue to take a minimally information...[T]his process compliant approach to of simplification results sustainability disclosure, in trade-offs; decisions to providing the market exclude and include; and with information that is to manipulate data...We must inadequate for making accept that [sustainability investment decisions. indicators] are not ‘laws of nature’ but human Sustainability Accounting constructs that reflect the Standards Board 2017a:3 biases, failings, intention and worldview of their creators.
Overly complex and confusing disclosure and Bell and Morse 2018:6-7 reporting, lack of comparability, and clutter and omissions associated with materiality all affect the reliability and credibility of data and From the perspective of sustainability, care reporting narratives. But there are also other needs to be taken to constantly rein in the tac conditions that are particularly pertinent in tical, symbolic and political uses of disclosure this regard. Here we refer to (i) the degree of and reporting. Mark Kramer, who with Michael bias and self-promotion within reporting, Porter promoted the concept of “shared value” (ii) the possibility that ratings and rankings noted above, points out that while adopt quite different criteria for assessing most companies right now are doing a performance, (iii) the tendency to focus on sustainability report...[they’re] generally policy and reforms to management systems not reporting the bad news, and [instead as a proxy for performance, and (iv) a myopic share] some anecdotes about some of perspective whereby companies fail to relate the wonderful things they’re doing that data on progress to broader long-term goals. they have cherry-picked. So, extractives companies don’t say a whole lot about Selective disclosure and reporting carbon footprints and fossil fuel, and As indicated in the above quote, disclosure banks don’t say a whole lot about the high by its very nature involves some bias, which charges for people with bad credit or the is also underpinned by the multiple uses of overdraft fees. Having this sustainability indicators. Herzi (2018)65 refers to five types report gives them a vehicle to report on of usage which have very different positive the things that they want to report on and and negative implications for the quality of that make them look good and skip over disclosure and reporting: the tougher issues.66 • Instrumental: inform decisions that have impacts Despite the considerable efforts of the GRI and • Conceptual: catalyse learning others to promote more meaningful disclosure and understanding and reporting, there are ongoing concerns that • Tactical: substitute for action [t]oo many companies have used the and deflect criticism [GRI] framework à la carte, and very • Symbolic: provide ritualistic assurance few hire external assurers to report • Political: support a predetermined on the enterprise’s adherence to the 65 These multiple uses are position guidelines. ...While organizations are cited in Bell and Morse (2018:7-8). undoubtedly spending considerable time and effort to apply the GRI, the reports 66 Cited in Nitzberg (2016).
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in large part represent a biased public made by stakeholders that have a more critical relations medium, emphasizing what take on big business may vary significantly. those organizations wish to report—the positive features about their sustainability It is curious, for example, that a company like endeavors, omitting descriptions of the Danone, which receives kudos from people like negative features that require significant Mohammed Yunus and the social business or attention (Bloom 2016:229). B Corp community, as well as the international trade union movement concerned with worker Comparing disclosure among large United rights, comes in at the bottom of the Oxfam States corporations in 1977 and 2010, Cho et ranking of the world’s top 10 food and beverage al. (2015) find that “legitimacy factors” related corporations, as referred to in Box 1.3 and to firm size and membership in environmentally Annex 3. sensitive industries were a major driver of disclosure. Therefore, they suggest, concerns Why does Oxfam rank Danone so poorly? In about disclosure being an exercise in image relation to workers, it is apparently because enhancement remain as pertinent today as they the company does not publish the number were in the past. of workers in its supply chain. For union organizations, such as the International Union In their evaluation of the Ethical Trading Ini of Food, Agricultural, Hotel, Restaurant, Cater tiative (ETI), Barrientos and Smith (2012) note ing, Tobacco and Allied Workers’ Associations that within the area of labour standards there (IUF), this indicator probably pales in compar is a tendency for companies to focus more on ison with the fact that Danone was one of the “outcome standards” related to occupational first transnational corporations to sign an health and safety or minimum wage compliance international framework agreement to respect than on “process rights” associated with core workers’ rights across its global operations and, labour standards such as freedom of association more recently in 2016, signed an agreement and collective bargaining. with the IUF, its tenth, to address the structural problem of precarious employment.67 Part of the problem regarding selective reporting and bias concerns the process of determining From the perspective of transformative change, what is a material issue and indicator—that is, the social business model is important given one that is necessary in order to be able to that the surplus generated is reinvested into the make informed decisions. A rigorous process business and the target group of beneficiaries of materiality determination is the key to rather than being passed on to investors (Yunus consistent, relevant and credible disclosure. As 2007:24). Similarly, international framework noted in Chapter 3, Mark McElroy (2019) points agreements between international union federa out that such a determination process should tions and transnational corporations can play involve identifying the multiple impacts that a key role in promoting labour rights globally. corporate behaviour has on different forms of One example with a long track record is the capital (natural, social, human, economic and so agreement between Danone and the IUF. forth), as well as the key stakeholders impacted. Their concerns and preferences should, in turn, Similarly, two companies that rank fairly high be factored into the process. on the Oxfam rating—Nestlé and Coca-Cola— are repeatedly singled out as bad performers on Variations in assessment criteria the IUF website. The only company that seems Managers, like other stakeholders, may adopt to fare reasonably well for both these stake quite different criteria to determine what con holders is Unilever. Such discrepancies point to stitutes good and bad practice, as well as what the need for not only greater consensus among 67 See the IUF’s web repository is material. This also applies to different ratings key stakeholders on key performance issues of international and rankings entities or scorecard initiatives and indicators, but also critical assessment of framework agreements at that may assess the performance of a particular assumptions about what are key performance http://www.iufdocu corporation quite differently. Even assessments indicators. ments.org/ifa/
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Policy versus performance assessment failures related to the 2011 Data and information often focus more on Fukushima nuclear disaster. company policy and management systems, • Olympus, Tesco and Toshiba account and less on actual social and environmental ing scandals unearthed or prosecuted performance and impacts. While it is tempting in 2011, 2014 and 2015, respectively. to assume that improvements in management • Petrobras fraud and corruption scandal systems inevitably translate into positive out reported in 2015. comes in terms of performance, the evidence • Volkswagen’s emissions scandal in is far from conclusive and, indeed, may point 2015. in the other direction (Delmas and Blass 2010; Boiral 2013). A more fundamental problem with ratings is that observed by Delmas and Blass (2010) in relation The assessment and ranking of 98 of the to environmental disclosures. The case may be world’s largest publicly traded companies from that corporations with poor performance, who three “at risk” sectors—agricultural products, are under the greatest pressure to adopt CR apparel and extractives—conducted by principles and policies and to work hardest Corporate Human Rights Benchmark (2018) to (re)gain reputational advantage, end up revealed that while most had a system in place having the best environmental management to identify human rights risks and impacts, systems. The problem is that, often, ratings as many companies are not implementing sess environmental management systems to a the UN Guiding Principles on Business far greater extent than actual performance or and Human Rights (UNGPs), with all impacts. Hence, firms that are placed at the the dangers of human rights abuses top of ratings may be doing well in terms of of workers and communities that this their environmental management systems and implies…On average, companies are reporting but far worse in terms of performance better at demonstrating their commit (Delmas and Blass 2010). Similarly, Boiral finds ments via policy than their actual that information in the sustainability reports of processes. Similarly, processes are better 23 energy and mining companies that claimed disclosed than evidence of systematic the GRI A or A+ rating (see Box 1.2) were largely implementation (CHRB 2018:6). disconnected from several GRI principles, real business impacts and critical issues revealed by This observation is confirmed by the data others (Boiral 2013). presented above, on how companies are ad dressing corruption or applying the Gender Indeed, a key challenge is how to move beyond Gap Analysis Tool in the supply chain. While the focus on adapting or reforming ESG man a substantial percentage of corporations have a agement systems to actual performance and policy in place, concrete implementation meas impacts. Too often management system reform ures are far less apparent. is taken as a proxy for improved impacts. The old adage about how a manufacturer of cement Frequently we are reminded of the contradiction life jackets could obtain ISO 9001 certification between seemingly good CR policy and bad (for management systems aimed at ensuring performance when global corporations find product quality) illustrates the problem at themselves at the centre of negative public atten hand—the product poses a serious threat to tion and are delisted from key ratings initiatives any user regardless of the fact that its design such as the DJSI. Examples include: and manufacturing complied with various • BASF, Merck (Germany) and others specifications. found guilty by the European Union of price fixing related to vitamins in 2001. The broader sustainability context • Siemens, for bribery scandals in 2008. Another major limitation of data aimed at • BP, following the 2010 Deepwater assessing corporate sustainability performance Horizon oil spill in the Gulf of Mexico. relates to the broader sustainability context • TEPCO’s health, safety and risk (Reporting 3.0 Blueprint 5). As Ralph Thurm
54 CORPORATE SUSTAINABILITY ACCOUNTING: WHAT CAN AND SHOULD CORPORATIONS BE DOING?
(2013) explains: “information available through is the CEO-worker pay ratio? How do trends sustainability reports and websites only tells us in real wages compare with trends in labour who is less bad. We seem completely in the dark productivity? Similarly, data may show an when it comes to knowing what is minimally improvement in certain working conditions good enough”. GRI co-founder Allen White among core employees but ignore broader argues that: trends related to subcontracting, which are ESG does not, by nature, carry a true often associated with a decline in labour stan sustainability gene. A company may rate dards. very highly on an ESG score, but to say this company is an excellent sustainability Rotz and Fraser (2018) point out that “indicators performer is a very fundamentally differ need to be nested in a broader analysis that helps ent statement. [A] company [should be] to make sense of context specific dynamics” positioned to prosper for the long-term (cited in Bell and Morse 2018:6). Emphasizing in a way that respects limits, thresholds, context also requires an assessment of “linkages, and norms that are externally defined, synergies and antagonisms between goals and not simply defined by peer group com targets (and their associated sustainability parison or internal targets and goals indicators of course) rather than simple listings (cited in Baue 2013). under themes” (Bell and Morse 2018, citing Gallopin 2018:6). Another contextual gap relates to so-called fair allocations—that is, the consideration of In an effort to go beyond selective ESG disclo what an equitable distribution of resources sures and to ensure that sustainability reporting among stakeholders might entail (Thomas and would “explicitly link micro (company) perfor McElroy 2016).68 mance with macro (systems wide) outcomes”,69 GRI introduced the Sustainability Context As r3.0 points out, “...existing reporting frame Principle in the early 2000s. Companies were works and standards...tend to provide numera expected to link the assessment of performance tors without denominators…[T]his would to key contextual issues and trends at local, be akin to a sports reporter mentioning the national, regional and global levels. However, as improvement rate of a star player’s first-half noted by the co-founder of the Global Reporting goal scoring, while neglecting to mention Initiative, Allen White, its application “remains her teammates’ worsening rates dragging the incipient, uneven and occasional”.70 A 2017 overall team rate down; or the team’s statistical study that reviewed over 40,000 sustainability underperformance in the second half, and reports published since 2000, found that just hence its overall losing streak” (Thurm et al. 5 percent of reports cited ecological limits at 2018:52). all, while only 31 out of 9,000 companies had disclosed their environmental impacts in the For example, a company may provide data that context of ecological limits and strategies for indicate a decline in carbon emissions but not meeting these limits (Bjørn et al. 2017, cited in relate this to a tolerable amount of GHG emis Reporting 3.0 2018). sions from the perspective of science-based targets aimed at controlling global warming. Mainstream responses Other data may show an increase in workers’ wages but fail to relate this to the distribution Within the dense institutional ecosystem that of company income and economic or financial supports CR, efforts are emerging on various performance. Put another way, are workers fronts to address the above accounting issues receiving their fair share of the pie or are they related to complexity, comparability, reliability, 68 See also Baue 2019, Raworth 2017, UNEP getting the crumbs? To know this, workers’ credibility, relevance and materiality. Indeed, 2015. wages need to be viewed in context. How are today there is a palpable urgency to the mat 69 Allen White cited in wage trends faring in relation to profitability ter and even the stalwarts of sustainability Thurm 2017:122. and executive remuneration? How unequal measurement and reporting cannot remain 70 Cited in Baue 2017.
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static in the face of shifting global economics, information sources but also new content and growing resource scarcity, and investor and focus, as well as a fresh role for stakeholders stakeholder demands for more and better empowered with more information (2016a). quality information regarding multiple im Sustainability data are becoming available pacts. to stakeholders in real time and “companies will have less control over information about In 2019, for example, the Global Impact their performance than they do today” (GRI Investing Network (GIIN) launched the 2016a:20). The report contends that disclosures IRIS+ system in order to address three key and data will more readily and clearly reveal concerns within the field of impact investing: corporate impacts on communities across lack of implementation guidance, lack of core operations related to climate change, the metrics and comparable data, and continued ecosystem, contamination, and access to food, confusion and fragmentation. The IRIS+ education, health services and civil rights. system brought together standards and norms of impact measurement and management associated with numerous initiatives, and sought greater alignment with the SDGs. Investors are encouraged to adapt these to “ their specific priorities and needs. The aim We are now on the cusp is to provide clarity regarding data and best of a new era: the way practices, as well as “streamlined, practical, we capture, analyze how-to guidance that impact investors need – and use sustainability 71 all in one easy-to-navigate system”. data is about to be transformed...We are Several other initiatives to address core sus tainability accounting issues are described in moving from an era Annex 4. They include: where sustainability • GRI Sustainability Reporting information is collected Standards and reported, to an era • Action Platform Reporting on in which stakeholders— the SDGs including the companies • SDG Compass themselves—are using • World Benchmarking Alliance this information to • Corporate Reporting Dialogue learn more about their • UNCTAD and International organizations, their Standards of Accounting and risks and opportunities, Reporting (ISAR) and learning to make Science-Based Targets initiative • better decisions...We • CDP and Climate Disclosures Standards Board need to unlock the • World Federation of Exchanges ESG value of sustainability Guidance and Metrics performance data, • European Commission Guidance on allowing it to be Non-Financial Reporting Directive accessed and shared in a variety of ways. Digital innovations Considerable store is also being placed on Michael Meehan technological innovations as a means of Former Chief Executive, GRI 71 See GIIN. About IRIS+: Background and Purpose. improving disclosure (see Annex 5). As the (GRI 2016a:3-4) Accessed 20 June 2020. GRI report The Next Era of Corporate Disclosure: https://s3.amazonaws.com/ giin-web-assets/iris/assets/ Digital, Responsible, Interactive highlights, digital files/IRIS_2-Pager.pdf innovations not only entail novel formats and
56 CORPORATE SUSTAINABILITY ACCOUNTING: WHAT CAN AND SHOULD CORPORATIONS BE DOING?
Indeed, enhanced and emerging technologies For further and more detailed examples of are particularly useful for improving commu how digital innovations are being harnessed to nication and engaging with stakeholders, potentially improve sustainability, see Annex 5. gathering accurate and reliable information, It is important to point out that while digital monitoring performance, and responding to innovations present opportunities to improve risks and opportunities throughout the supply the quality of CR disclosure and reporting, chain (see Box 2.1). they also have a variety of actual or potential limitations, as additionally noted in Annex 5.
Box 2.1. Enhancing Disclosure and Reporting Through Digital Innovations
• Heineken published its first digital-only combined financial and sustainability annual report in 2018. Website visitors can access the company’s interactive GRI reference table to see the company’s reporting against the GRI Sustainability Standards and to learn more about its “Brewing a Better World” strategy.* • Thread International and Patagonia employ supply chain mapping to trace raw materials (Amesheva 2017). Using Sourcemap software, Thread follows the collection of plastic bottles through to their transformation into “flakes” and, ultimately, clothing. • Carbon Trust’s collaboration with BT (formerly British Telecom) using big data led to the discovery that emissions beyond the telecom company’s direct control made up 92 percent of the total and that two-thirds of the emissions originated in BT’s supply chain of 17,000 suppliers across the world (Hsu 2014). • Austral Fisheries is piloting the new OpenSC digital platform, launched by WWF-Australia and BCG Digital Ventures, that employs blockchain and cutting-edge technologies to help firms clear their supply chains of illegal, unethical and environmentally damaging products. OpenSC is one of the world’s first “profit with purpose” startups using blockchain technology to reach the SDGs. Consumers can track “where a specific product came from, when and how it was produced, and how it journeyed along the supply chain” (Austral Fisheries 2019). • IBM, LG Chem, Huayou Cobalt and Ford are partners in a pilot watched over by RCS Global, a multinational responsible-sourcing organization to cut the use of cobalt connected to human rights abuses. The technology traces cobalt from the Huayou mine and smelter in the Democratic Republic of Congo to the LG Chem battery and cathode factory in South Korea and ultimately to the Ford plant in the United States. The goal is to increase transparency along the mining industry’s worldwide supply chain (Jamasmie 2019). • Walmart uses an IBM blockchain platform to track 25 types of food products such as chicken, milk and berries. The rationale is to build trust with consumers and respond to their need to know where their food originates, how it was grown and if it is organic. In the future, the company will enable customers to engage with its blockchain solution (Bhattacharyya 2018).
* See www.theheinekencompany.com
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CHAPTER 3 Thinking Forward
The spate of innovations reviewed above sug “ gests that the CR industry is at a crossroads on …we must realize the the journey to ensure that companies are part very system of financial of the solution rather than part of the problem capitalism that created vis-à-vis social and environmental justice. the problems we seek to Heightened awareness of the climate crisis, address may not be easily fallout from the global financial crisis, coupled modified on the edges with international development frameworks merely to accommodate like the MDGs and SDGs, have placed in sharp our conscience, but relief the limits of conventional CR reporting. must be reassessed at Selective tinkering that claimed to improve a fundamentally more the quality of disclosure shows some signs of profound level. being replaced by a more systematic approach. This has not only raised the profile of key issue areas that had been neglected but also aimed Jed Emerson (2018:17) to enhance the quality of disclosure in terms of basic principles of accounting related to re liability, credibility, ease of comprehension, comparability, relevance and materiality.
58 CORPORATE SUSTAINABILITY ACCOUNTING: WHAT CAN AND SHOULD CORPORATIONS BE DOING?
Nevertheless, there are serious concerns that this The strategic risk, of course, is that approach, albeit far more comprehensive than GRI would be co-opted and assimilated earlier, is unlikely to do much to transform the within these structures rather than trans macro conditions related to human well-being forming them. This does appear to be and planetary health (Thomas and McElroy the emerging outcome. NFR does not 2016; Baue 2019). CR initiatives are still heavily appear to be affecting core product or geared towards reducing the incidence of harm market strategies, or the fundamentals of related to selected impacts (Baue and Thurm corporate governance (Levy and Brown 2016). Furthermore, they often do so through 2012:119). the proxy of management systems reform rather than concrete changes in performance and im Nevertheless, as noted below, spaces already exist pact. This approach has not factored in what a and can be cultivated, not least politically, for sustainable future might actually look like re structural change to occur. Furthermore, the set garding key social, environmental, economic and of issues examined in Part 2 of this report suggest governance conditions, nor does it measure pro a number of entry points for forging a movement gress towards such goals and targets. Moreover, for transformative change within the CR field. it does not consider key structural determinants of unsustainable development or of well-being, It is important to note that focusing on such in particular those associated with inequality issues, related indicators and normative targets and power relations. This represents a critical is a means for both assessing performance weakness because both aspects—the normative regarding the SDGs and transformative change, dimension associated with time-bound targets, and understanding what sustainability is really and the structural dimension—are what funda about. As suggested by Bell and Morse: mentally define “transformative change”. Viewed Hence, it is not solely a case of [Sustain from this perspective, transformative change ability Indicators (SIs)] being created as involves not only a journey towards a sustainable an operational output after an under future but also one that is only possible if standing of sustainability and resilience the structures that underpin and reproduce has been arrived at, but SIs as a catalytic unsustainable development are transformed. precursor to help facilitate such an understanding (2018:6). The idea that the field of CR assessment and sustainability accounting might be able to A transformative approach fundamentally ques promote such structural change is, of course, a tions the normative hierarchy of sustainable de tall order. Policies and practices related to CR velopment goals. In its comprehensive analysis tend to work very much within the rules of the of policy innovations for transformative change, game, not questioning structural dimensions UNRISD (2016) asserts that what needs to of capitalism—that is, the broader institutions change is the prioritization of economic, social within which corporations are embedded. and environmental objectives. Mainstream CR Referring to the GRI, Levy and Brown note: disclosure as currently practised—no matter The impact of [non-financial reporting how refined—continues to uphold a normative (NFR)] is constrained due to its nesting hierarchy whereby the economic/financial di within the broader institutions of capi mension prevails. As Elkington observes: talism, particularly financial markets and Fundamentally, we have a hard-wired legal structures of corporate governance. cultural problem in business, finance GRI would never have made any progress and markets. Whereas CEOs, CFOs, had it directly challenged the primacy of and other corporate leaders move heav profit maximization, the legal rights of en and earth to ensure that they hit shareholders or the autonomy of corpo their profit targets, the same is very rate management. These considerations rarely true of their people and planet led the GRI entrepreneurs to shape the targets. Clearly, the Triple Bottom Line reporting guidelines as complementary has failed to bury the single bottom line to corporate and financial market needs. paradigm (2018).
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After some three decades of tinkering and Reshaping business incentive structures incrementalism, there is growing recognition for longer term investment approaches of the need for a profound rethink of what cor and exploring supplementary indicators porate sustainability is in relation to the major of human development and well-being. contemporary development challenges, and how These actions can include fair fiscal poli sustainability impacts should be measured. It is cies, revised corporate accounting stan noteworthy that John Elkington, who coined the dards, enhanced stakeholder represen triple bottom line concept, has himself called for tation and changes in reporting practices. a “product recall” for what has become a defective New measures of country progress also concept given the somewhat myopic way it has need to be developed to account for the been applied to date. As he further notes: distributional dimensions of growth, the ...the TBL wasn’t designed to be just value of unpaid work performed in the an accounting tool. It was supposed to service of households and communities, provoke deeper thinking about capitalism and the externalities of economic activity, and its future, but many early adopters such as environmental degradation understood the concept as a balancing (GCFW, Executive Summary:4). act, adopting a trade-off mentality (2018). From a transformative perspective, the notion of According to Ralph Thurm (2014), corporate risk shifts beyond that of the corporation (such sustainability policies and practices need to over as risks to reputation, risks to supply chain come a minimalist “do no harm” strategy and coordination, risks related to liability, risks transition to one that is “net positive”:72 associated with resource depletion and natural Those dealing with sustainability have disasters) to risks to the sufficiency and health often forgotten the true meaning of sus of multiple capitals and the well-being of the tainability, especially using ‘intergenera stakeholders dependent on them (Thomas tional equity’ as one of the most important and McElroy 2016). Moreover, the notion of guidelines... Overall, the majority of those what is relevant and material shifts beyond corporations that have a certain focus on basic aspects of social protection (for example, sustainability…are happy with a ‘show less minimum wages, occupational health and safety, bad’ attitude, simply because they think non-discrimination in the workplace) and the becoming net positive is impossible to elimination of environmental “bads” (such as reach (Thurm 2014). pollution and waste) to structural conditions. These include: Following years of monitoring and analysing • power asymmetries within corporate progress, particularly in the agro-food and bev structures and value chains that erage sector, Oxfam (2016), too, has called for marginalize the voice and bargaining a shift from an incremental to a transformative power of certain stakeholders; approach, along four dimensions: lobbying to • globalized value chain formation reverse public policies involving a “race to the and lengthening trade circuits bottom”; countering the growing economic pow that mask irresponsibility and er of corporations associated with the concen unsustainable impacts both tration of capital; redistribution of value within upstream and downstream; the value chain; and new patterns of business • aspects of corporate culture that ownership, issues to which we return below. reinforce business-as-usual and downplay or marginalize social In the context of transitions associated with a and environmental ethics; 72 The term “net positive” carbon-neutral and digital future, the Global • incentive structures within refers to “putting more back into the Commission on the Future of Work (2019) em corporations and financial institutions environment or society phasizes, inter alia, the need to focus on long- that privilege conventional priorities than a company takes out, with a resulting term “transformative” investments in areas of such as short-term financial results, positive corporate decent and sustainable work. These investments aggressive tax planning and the footprint” (Forum for the Future et al. would require not only an enabling public policy ongoing externalization of social 2014:6). environment but also: and environmental costs;
60 CORPORATE SUSTAINABILITY ACCOUNTING: WHAT CAN AND SHOULD CORPORATIONS BE DOING?
• ownership and governance structures of knowledge that typically inform mainstream that privilege (i) shareholder primacy disclosure and reporting. It is important to think and returns to senior management outside the box, or at least far more holistically over more equitable patterns of than is generally the case. The remainder of distribution of income and value this chapter points to four avenues of inquiry added, and (ii) the hierarchical power that can yield important insights in this regard: of managerial elites that imposes limits (i) cutting edge innovations that have focused on workplace democracy; on so-called context-based disclosure; (ii) alter • financialization, which reinforces native business and enterprise models and the imperative of short-term financial varieties of capitalism—ones that have legal, results over long-term integrated governance and cultural arrangements that planning, and enhances the power align the DNA of business and enterprise within value chains of companies that with environmental and social objectives and control trading networks, finance and democratic governance; (iii) social science insurance;73 theory and multidisciplinarity—that is, concep • processes of disempowerment tual and analytical insights associated with a associated with the flexibilization variety of academic sub-disciplines and schools of labour markets and constraints of thought; and (iv) transdisciplinarity—that is, on unionization and collective action worldviews, knowledge and perspectives asso involving workers and producers; and ciated with a broad range of different societal processes of empowerment that can actors. enhance the capabilities and influence of disadvantaged stakeholders; • gender disadvantage in pay and Learning from cutting-edge promotion that is related to time use innovations demands and cultural assumptions associated with caregiving; and An important avenue for rethinking indicators is • disabling public policy environments, to examine the objectives and targets adopted by shaped in part by regressive forms initiatives that attempt to go beyond conventional of corporate political influence, approaches to disclosure and reporting. The fol that not only fail to facilitate and lowing seem particularly pertinent in this regard. encourage corporate responsibility and sustainability but may actually enable Net Positive inaction, irresponsible behaviour and The Net Positive Project the so-called “race to the bottom”. Launched in 2016, the Net Positive Project aims to develop analysis, awareness, guidelines, As the report of the IPPR Commission on Eco tools and other resources to enable companies nomic Justice (in the United Kingdom) notes: to go beyond a “do no harm” approach and Economic justice needs to be ‘hard- transition to one that proactively replenishes wired’ into the way the economy works. the environment and ensures that companies [Injustices and inequalities] need to be leave a positive societal and environmental foot tackled at source, in the structures of print.74 The 12 key principles underlying this the economy in which they arise. These approach convey a level of ambition and scope 73 For an analysis include the labour market and wage bar of materiality that far exceeds conventional of the effects of financialization on the gaining, the ownership of capital and disclosure and reporting (see Box 3.1). copper value chain, see wealth, the governance of firms, the oper Kesselring et al. 2019. ation of the financial system and the The world’s most innovative organisa 74 Members of the Net rules that govern markets (IPPR 2018:4). tions recognise this, and are acting on Positive Group include BT, Capgemini, Dell, it. We’re seeing businesses being entirely Greater Manchester Furthermore, the process for determining “struc powered by renewable energy, reusing Fire and Rescue, Ikea, Kingfisher, Pepsico, tural materiality” and sustainability targets needs expensive materials and slashing their SKF, The Crown Estate to extend beyond the worldviews and bodies carbon emissions and enhancing society. and TUI Group.
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Companies have an important role to play Box 3.1. Net Positive Principles in creating an abundant environment and a better society. They must go beyond 1. The organisation aims to make a positive committing to ‘doing no harm’. Instead impact in its key material areas. they must actively commit to doing more 2. The positive impact is clearly good (Forum for the Future and the demonstrable if not measurable. Climate Group 2016:2). 3. As well as aiming to have a positive impact in its key material areas, the organisation also shows best practice in corporate responsibility and sustainability across the spectrum of social, environmental and economic “ ‘Net Positive’ is not a impact areas, in line with globally new way of doing CSR. accepted standards. It’s a new way of doing 4. The organisation invests in innovation business. That’s because in products and services, enters new markets, works across the value chain, an organization that aspires and in some cases, challenges the very to be Net Positive doesn’t business model it relies on. just want to minimise harm, 5. A Net Positive impact often requires a or do ‘less bad’. It wants big shift in approach and outcomes, and to actively create good. cannot be achieved by business-as-usual. It aims to have a positive 6. Reporting on progress is transparent, impact which reaches far consistent, authentic and independently verified where possible. beyond traditional business Boundaries and scope are clearly boundaries. This means it defined and take account of both considers the whole value positive and negative impacts. Any trade-offs are explained. chain, the natural world and society too. A Net Positive 7. Net Positive is delivered in a robust way and no aspect of a Net approach creates value in Positive approach compensates for both the short and long term. unacceptable or irreplaceable natural It makes for better business. losses, or ill treatment of individuals and communities. 8. Organisations enter into wider Forum for the Future et al. 2014:9 partnerships and networks to create bigger positive impacts. 9. Every opportunity is used to deliver While material issues may vary for different positive impacts across value chains, companies and industry sectors, the Net Positive sectors, systems, and throughput to the natural world and society. measurement guide defines what being Net Positive means in relation to issues commonly 10. Organisations publicly engage in influencing policy for positive change. considered the most significant. According to Forum for the Future and The Climate Group 11. Where key material areas are ecological, robust environmentally (2016), being Net Positive means taking the restorative and socially inclusive following actions in the following areas: methods are applied. • “Carbon: removing or avoiding the 12. An inclusive approach is adopted at generation of more carbon than you every opportunity, ensuring affected create in your operations and/or across communities are involved in the process of creating positive social and/ your value chain. or environmental impacts. • Water: helping to create more accessible water and better quality water than you consume across your Source: Forum for the Future et al. 2014:9 operations or your value chain.
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• Social: not destroying social value 1.5°C and to reach net-zero emissions and creating social value across your (in Scopes 1, 2 and 3) by 2050. value chain. Social value is a term • Engage in comprehensive, consistent interpreted in different ways—we take and transparent annual reporting. it to mean adding to human and • Commit to using their influence and social capital. Human Capital consists advocating for policy that supports an of people’s health, knowledge, skills, economy-wide transition to net-zero motivation and well-being. Social greenhouse gas emissions by 2050. Capital concerns the institutions that • Commit to ensuring their transition help us maintain and develop human plans account for the positive and capital in partnership with others; e.g. negative impacts on workers and families, communities, businesses, communities, and work in partnership trade unions, schools, and voluntary with stakeholders to ensure the organisations. transition is just and fair. • Material use: renewing more resources than you consume across your The MultiCapital approach value chain and sourcing them in a As noted in Chapter 2 when discussing “inte responsible way. grated reporting”, increasing attention is • Ecological: enhancing more Natural being focused on measuring not only specific Capital in what you do (e.g. farming aspects of a company’s environmental, social in a way that adds to the productivity and financial performance but performance of the land and builds the biodiversity related to a comprehensive set of assets or of insect life) than you consume “capitals” whose stocks and flows have a across your value chain.” bearing on sustainable development. This approach recognizes multiple capitals: natural, Net-Zero 2050 Team human, social and relationship, constructed The B Team initiative referred to in Chapter (also referred to as manufactured or built), 2, that encourages companies to commit to financial and intellectual, which may be added science-based targets (SBTs), has been taken to or depleted (Thomas and McElroy 2016). It further by the Net-Zero 2050 Team.75 This also recognizes the linkages, interdependencies group of CEOs which, at the time of writing, and trade-offs between different capitals. represents Kering, Unilever, Broad Group, Safaricom and Natura, has pledged to phase Thomas and McElroy extend this integrated out greenhouse gas emissions by 2050, as well reporting approach in their work on the Multi as to be proactive in policy advocacy associated Capital Scorecard, referring not only to multiple with the net-zero GHG objective.76 vital assets and factoring in inter-capital relations, but by also establishing interim and long-term The Net-Zero team collaborates with the Science targets related to thresholds or a sustainability Based Targets initiative (SBTi), and the 2050 norm (that is, an ideal standard that would have pledge is recognized as part of the We Mean to be attained for an organization to be truly Business Coalition’s Take Action campaign. sustainable) that allow a company to measure progress towards a sustainable future. They state:
The B Team website sets out what companies [M]easuring shortfalls and surpluses 75 See http://www.bteam. joining this initiative must do: across multiple capitals is an entirely new org/plan-b/net-zero- • Commit to set a science-based target, concept, and it offers an entirely new by-2050/ and submit this target to the Science way to manage performance. The very 76 The B Team also works with a number Based Targets initiative for verification act of providing routine scorecards and of other companies, within two years. establishing not only an ideal end goal including Virgin Group, Econet, Salesforce • Produce a roadmap demonstrating but also interim or ‘trajectory’ targets and Tiffany & Co, that how they will implement their SBT in will initiate paradigm shifts in most of have committed to line with the level of ambition required the organizations that adopt it (Thomas the net-zero principle but have not yet set a to keep global temperature rise below and McElroy 2016:2). science-based target.
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Figure 3.1. Sample MultiCapital Scorecard
A B C D Vital capitals*
N: Natural H: Human S: Social and Relationship C: Constructed IF: Internal Economic-Financial IN: Internal Economic-Non-Financial EF: External Economic-Financial Triple EN: External Economic-Non-Financial bottom line
Bottom line Areas of impact Capital impacts score Progression Weight score (AxB) Weighted sustainable score (Bx3) Fully fully sustainable (D-C) Gap to (AOI) Area of Impact line (C/D) bottom scores
Product safety H 3 5 15 15 0 100%
Social Workplace safety H S C -1 5 -5 15 20 -33% 43%
Gender equity H 2 4 8 12 4 67%
Living wages EF 1 1 1 3 2 33%
Economic Equity IF 2 5 10 15 5 67% 79%
Debt EF 3 5 15 15 0 100%
Climate system N -2 4 -8 12 16 -66% 77 For example, material areas of impact related to Environmental Water N 2 3 6 9 3 67% 0% environmental dimensions may include water supplies, solid Solid waste N 1 2 2 6 4 33% waste and the climate system. Overall performance 44 102 43% 78 Using progression performance scores, each year’s Note: Areas of impact shown here are purely illustrative and are always organization-specific. performance is scored relative * Intellectual capital is typically embedded in most of the others. to the preceding years as well Source: Based on Thomas and McElroy 2016:57, modified by Thomas and McElroy LLC. Reproduced with permission. as sustainability norms and trajectory targets for each area of impact. Performance that matches an immediately preceding year is represented by 0, limited progress towards achieving an interim target in Underpinning this approach is the belief that While aiming to allocate a specific score to grade subsequent years by a score it can be a powerful long-term learning tool a company’s triple bottom line performance, this of 1, more significant annual progress by 2 and meeting for organizations, quite distinct from conven approach is seen as an alternative to mone tization the target by 3 (Thomas and tional disclosure and reporting processes that associated, for example, with environmental pro McElroy 2016:58). A significant generate information that tends to be geared fit and loss (EP&L) and social return on invest decline in performance is reflected in a negative towards financial investors (Thomas and ment (SROI). McElroy (2017) points out that score. As noted in Figure 3.1, McElroy 2016:18). Incentive structures would such efforts can serve a purpose in terms of progression scores per impact area (column A) are multiplied need to adapt to ensure that progress towards placing a valuation on impacts but, generally, by their weighting (column sustainability is rewarded. are not suitable for assessing the sustainability B) to give a weighted score (column C), which in turn is performance of an organization. This is because measured in relation to the Applying the MultiCapital Scorecard involves they do not take account of social thresholds and “fully sustainable score” (Bx3, column D). Comparing the (i) identifying material areas of impact (AOI) environmental limits captured by the sustain weighted score with the fully relevant to an organization’s stakeholders77 ability context principle referred to in Chapters sustainable score indicates and weighting these areas according to what 1 and 2; in addition, they incorrectly assume that the size of the performance gap, if any. This is the basis is perceived to be their relative importance; (ii) different kinds of resources or capitals can be for calculating, in percentage establishing sustainability norms and interim freely substituted for one another. terms, actual performance relative to the sustainability trajectory targets for specific areas, and cor norm. Using the same method responding measurement indicators or “data r3.0 allows for calculating progress (as a percentage) in relation collection protocols”; and (iii) applying a scoring Formerly known as Reporting 3.0, r3.0 is an to (i) each of the three bottom system (progression performance score) from -3 initiative that has produced various Blueprints lines (economic, social and environmental), and (ii) the (a three-or-more-year regression) to +3 (meeting related to data, accounting, reporting, new organization as a whole. or exceeding the sustainability norm).78 business models and the “transformation
64 CORPORATE SUSTAINABILITY ACCOUNTING: WHAT CAN AND SHOULD CORPORATIONS BE DOING?
journey”,79 aimed at designing and scaling-up The r3.0 approach emphasizes not only the next generation reporting practices.80 It blends appreciation and depreciation of different cap diverse innovations associated with “integrated itals but also the GRI sustainability context reporting, contextualization, monetization and principle of “placing performance information internalization, as well as new integrated state in the broader biophysical, social, and economic ments such as alternative [profit and loss] context” (GRI 2002:28). As noted by r3.0, “for accounts and balance sheets” (2016:1). companies to contribute to the fulfillment of the SDGs, they will need to translate [the The r3.0 Data Blueprint focuses less on the data trajectories identified in Agenda 2030]...into itself and more on (i) “getting a core, harmonised business-relevant thresholds and set fair, just set of principles in place, highlighting also and proportionate allocations for their respon different interpretations of shared principles sibilities” (Reporting 3.0 2018:2). and normative gaps that need to be filled”, and (ii) “the nature and structure of the met Like the MultiCapital Scorecard, r3.0 aims to rics...to accurately measure progress toward fi assess progress in relation to different stages nancial, economic, social and environmental of sustainability performance and business sustainability via dynamic interlinkages between rationales, from “Business-as-usual” (associated the individual company (micro), industry (meso), with profit maximization), through “Improving” and systems (macro) levels”.81 (associated with compliance), to “Sustaining” (repair), on to “Net Positive” (regenerative) and While recognizing the debate and concerns re finally, to “Gross Positive” (thriving). garding monetization, the measurement of per formance partly centres on “New Accounting”, Ethical leadership and internal psychological which involves cost and benefit accounting factors are also emphasized by r3.0: “the inter in economic and monetary terms as a means nal psychological integration needed at the of tracking impacts associated with multiple indi vidual and collective level to instigate the capitals and externalities (van der Lugt 2018). transformations necessary to scale up a green New Accounting is explicitly linked to the SDGs: and inclusive, regenerative economy” (Thurm The SDGs can be seen as an intermediate 2016). Following the fourth generation of the point of reference between the micro and King Code on Corporate Governance in South macro levels of target-setting and perfor Africa, ethical leadership “is exemplified by integ mance measurement. A new accounting rity, competence, responsibility, accountability, 79 See r3-0.org. At system built on revised principles and stan fairness and transparency” (Thurm et al. 2018:46). the time of writing, forthcoming Blueprints dards can turn this interface into a window relate to of opportunity and lever for scaling up Under the r3.0 approach, the materiality ques (i) sustainable finance, (ii) the value cycle, and what decision-makers in both the private tion involves new interpretations of materiality, (iii) governments, and public sphere agree are important related to thresholds and appropriate timeframes multilaterals and areas of value creation in the medium and in decision making (Reporting 3.0 2016). And foundations. 80 longer term (Reporting 3.0 2016:1). it moves beyond the realm of the micro-level See https://www.r3-0.org/ firm to meso-level industries and macro-level 81 See Blueprint 3: Data at https://www.r3-0.org/ Key elements of New Accounting include economic, social and environmental systems wp-content/uploads/ (van der Lugt 2018:5-6): (Baue 2019). Defining what is material requires 2019/07/R3-BP3.pdf • annual multilayered income companies to identify three elements (Thurm 82 Under this approach the term statements (profit and loss accounts); and Baue 2018:26): “rightsholders” • expanded balance sheets, namely • Rightsholders82 to whom companies (as opposed to the Comprehensive Statement of owe legal duties and ethical obligations “stakeholders”— those who affect Financial Position, which refers to due to direct impacts on their well-being or are affected other capitals; or indirect impacts on vital capital by a company’s behaviour), is used, • the Statement of Long-term Risks resources that these rightsholders rely as it “more clearly and Estimated Value of Assets and on for their well-being. aligns to companies’ accountability for direct Liabilities, which indicates what the • Impacts, both negative and positive, and indirect impacts balance sheet and risk position may on the stocks and flows of vital capital on social, economic, and ecological look like in the future; and resources that rightsholders rely on for resources” (Thurm • an explanatory narrative text. their well-being. and Baue 2018).
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• Thresholds that differentiate sustainable pact vis-à-vis local social and economic de levels of these vital capital resources from velopment is the scale, depth and quality of unsustainable levels — also known as the backward and forward linkages with host coun carrying capacities of capitals; as well as try communities, enterprises, producers and allocations of companies’ fair, just and distributors, as well as governments, society and proportionate shares of these resources. the economy more generally via, for example, taxation and “spillovers” such as know-how and The r3.0 Platform was instrumental in the technology. formation of the multistakeholder Global Thresholds & Allocations Council (GTAC) In contrast to most extractive or export- tasked with “assessing and validating method processing industries, so-called fast-moving con ologies for allocating fair shares of responsibility sumer goods corporations, for example, are to organizations for their impacts on the stocks better positioned structurally to develop such and flows of capitals—natural, human, social linkages (Clay 2005). Furthermore, as implied and other resources—within their carrying in several of the company examples noted in capacities”.83 Chapter 1, their strategic proximity to “green” or “ethical” consumers can act as an important driver of ESG performance. Learning from different enterprise models and varieties As observed in a comprehensive study by Oxfam of capitalism and Unilever Indonesia of the company’s local impacts, realizing the positive potential of link A second avenue of inquiry for determining ages requires not only the design and application what is key from the perspective of trans of conventional social and environmental stan formative change is to identify business dards, but also measures and conditions that models, enterprise cultures, patterns of in facilitate stronger negotiating power regarding vestment and varieties of capitalism that are products and services through cooperative inherently more conducive to inclusive and organization and marketing associations; other sustainable development. Particularly relevant social institutions such as insurance, credit are: (i) for-profit companies that are embedded and saving schemes; and diversification of in local economies via so-called linkages; (ii) income streams to reduce dependency (Clay for-profits that can reduce pressures associated 2005:86). Other linkages relate to taxation and with shareholder primacy by remaining in profit flows, where it is important to capture private hands (for example, family owned) or differences in relation to tax avoidance/ where non-profits (such as foundations) have a evasion versus fiscal responsibility, as well as significant stake;84 and (iii) non-profit, “less-for- profit repatriation versus local reinvestment. profit” or “for purpose”85 enterprises that follow More recently, attention has centred on the a qualitatively different normative hierarchy in implications for decent work of firms and relation to triple bottom line objectives, as in sectors that are rapidly automating versus those the case of the social and solidarity economy involved in more labour-intensive forms of (SSE), which is also the focus of the UNRISD service provisioning (Borzaga et al. 2017). programme under which this report has been prepared. Also considered in this section are Private, multistakeholder
83 See https://reporting3.org/ particular varieties of capitalism associated and multipurpose companies gtac/ with governance arrangements and normative Another category of for-profits that may have a 84 While not addressed perspectives more conducive to fairness, freer rein to push the CR envelope are those in this report, state- equality and social protection. that are privately owned or where a non-profit owned enterprises would constitute another foundation or cooperative owns a significant category of for-profits Linkages share. Several companies referred to above in that may prioritize social objectives. As development economists and organizations relation to “best practices” fall into this category,
85 like UNCTAD have long argued, an important including the confectionary firm Mars, and the See McCulloch and Ridley 2019. variable that differentiates a corporation’s im pharmaceutical company Novo Nordisk.
66 CORPORATE SUSTAINABILITY ACCOUNTING: WHAT CAN AND SHOULD CORPORATIONS BE DOING?
Some others are “Benefit Corporations” (B Corps), The implication of this study for practice is which are legally constituted as companies that firms desiring top performance need that must balance profit and social and/or to find ways to empower or energize their environmental purpose. Examples are Patagonia employees. A set of values such as those and Natura, referred to earlier, and Divine discussed here may provide that basis. It is Chocolate, which is 45 percent owned by the also clear that firms must constantly work Ghanaian women farmers cooperative, Kuapa to find ways to make the values part of the Kokoo, which supplies the cocoa. The NGO way the firm does business. Here again Christian Aid and the ethical finance institution, empowered employees can help in this Oikocredit, also have a stake.86 regard (Hoffmann and Shipper 2018:18).
In a context where conventional “C” corpora Much of this alternative economy comprises tions can claim B Corp status relatively easily, not-for-profit entities (such as self-help groups, third party verification and certification have community enterprises, NGOs) or less-for-profits become important to gauge compliance with (such as social enterprises) or profit mutualization social and environmental norms. For instance, organizations (cooperatives, mutual associations). the B Impact Assessment tool—which is part of It also includes alternative arrangements for pro the B Corp Certification process administered viding finance, including many collaborative by the non-profit B Lab—assesses performance in credit systems and complementary currency relation to 18 impact areas and scores companies, schemes such as WIR in Switzerland, Banco setting a lower limit score to indicate a minimum Palmas in Brazil, or Bangla-Pesa in Kenya. These standard.87 Sustainability accounting related to aim to democratize access to affordable, interest- B Corps and the broader universe of social and free credit in ways that contrast dramatically with solidarity economy, mentioned briefly below, are the interest-bearing loans associated with con the focus of a paper by Salathé-Beaulieu et al. ventional financial institutions and micro-credit. (2019) published for the same UNRISD project Furthermore, they can enhance resilience in as the present report. economic downturns (Bendell et al. 2015).
Cooperatives and other social and solidarity Such entities and schemes have a much freer rein economy enterprises and organizations in pushing the transformative envelope, given that A variety of enterprise models and financing they are less constrained by imperatives associated mechanisms have gone much further in crafting with shareholder primacy, short-termism, profit structural conditions conducive to inclusive and maximization and the externalization of social sustainable development. Organizations and en and environmental costs (Millstone 2012). terprises that make up the SSE lean towards prin ciples and practices associated with the fair dis Varieties of capitalism tribution of income, democratization of capital Beyond legal determinants and related ownership, the internalization of social and envi incentives, as well as ownership patterns at the ronmental costs, and workplace democracy. micro level of the firm, is the question of how different varieties of capitalism (VoC) structure Examining the case of employee-owned enter corporate strategy and culture. The literature prises, Hoffmann and Shipper (2018:16) note on this topic reveals how so-called “liberal” or that “beyond sharing ownership, most of these “Anglo Saxon” market economies (for example, firms possess a strong corporate culture based on US and UK), or “coordinated” (such as in a strong set of core values”. Key values identified northern Europe) and “hierarchical” ones (as in include both core foundational values—honesty, Latin America), shape labour-capital relations autonomy, empowerment and egalitarianism— and unionization, with implications for labour and four organizational values: accountability, protection, workplace democracy and workers’ transparency, community and sustainability. empowerment (Hall and Soskice 2001; 86 See Inside Divine, www.divinechocolate.com They further note that the case study firms also Schneider 2009). VoC also have implications 87 appear to have developed management practices for corporate culture and questions of income See www.bcorporation.net 88 See interview with Lars and policies that reinforce these values. The inequality and hierarchy. As the then-CEO of Sørensen in Ignatius authors conclude by stating: Novo Nordisk noted in 2014:88 and McGinn 2015.
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I saw that in last year’s list of best-perfor “redistributive” economics, political philosophy/ ming CEOs, I was one of the lowest paid. sociology, systems dynamics, institutional eco My pay is a reflection of our company’s nomics and feminist theory.89 The selection of desire to have internal cohesion. When sub-disciplinary perspectives found in Annex we make decisions, the employees should 6 is certainly not meant to be exhaustive; the be part of the journey and should know purpose is rather to illustrate how theoretical and they’re not just filling my pockets. And disciplinary windows are useful for pinpointing even though I’m one of the lowest-paid key underlying causes of unsustainable develop people in your whole cohort, I still earn ment, and possible solutions. And from there it more in a year than a blue-collar worker is possible to draw out implications for corporate makes in his lifetime...I have a Scandina sustainability performance disclosure in terms vian leadership style, which is consensus- of key issue areas and indicators. Furthermore, oriented. That principle is enshrined in this type of analysis suggests that the portfolio of our management procedures. I’m obliged key performance issues is not overwhelmingly to reach consensus with my colleagues on broad; rather, a fairly concise set of issue areas all decisions, and if we can’t, any objection emerges. Of concern is the fact that it is precisely needs to be reported to the board. these issues that often fly under the radar within corporate sustainability disclosure. A strand of management theory identifies equal ity and “the common good” as key values that Strands of ecological economics found, for inform Scandinavian management. Extreme example, in the work of Herman Daly (2013) and pay differentials are seen as unfair. According Tim Jackson (2009) emphasize the relationship to Shuter (2014): “The aim of Scandinavian between economic growth and the quality of management is to nurture a climate of company the ecosystem, as well as the issue of distributive loyalty, group spirit, and open dialogue where justice. Such analysis informs us that the solution individuals are not primarily motivated by the to global warming and environmental decline expectation of reward or punishment but rather requires deep changes in patterns of investment, the belief that what they are doing is in the best production, consumption and economic growth. interests of their colleagues and the company”. For sustainability performance accounting, this calls attention to the need for a fundamental shift towards a circular economy and “absolute Learning from social science decoupling” of environmental impacts from theory and multidisciplinarity growth. In other words, carbon emissions and other environmental “bads” need to decline in While it is increasingly recognized that science- absolute terms. The goal should not simply be 89 It should be noted, based thinking and evidence must inform cor improvements in resource intensity in contexts however, that the porate sustainability disclosure and reporting, of ongoing accumulation and growth, which “findings” that are yielded by these this tends to apply more to the environmental has been the focus of corporate sustainability different perspectives than the social dimension and involve primarily disclosure.90 Such perspectives also point to may not always be complementary the natural sciences, notably climate science. As the need to factor thresholds into sustainability or synergistic. noted in the following examples, social science strategies (Raworth 2017); and to measure impacts Tensions may exist. theory and knowledge drawn from multiple associated with the global value chain, including Piketty (associated with heterodox sub-disciplines and schools of thought can play Scope 3 emissions or whether corporations are redistributive an important role in identifying issue areas and supporting their suppliers through fair trade. economics), for example, assumes that indicators that are key from the perspective of They also suggest the importance of enterprise economic growth is transformative change and corporate sustain models and more labour-intensive service essential to avoid rising inequality; Jackson ability performance. activities associated with well-being and green and Victor (2014) transitions. (associated with ecological economics) Here we provide just a few examples drawn from insist that it is not. the sub-disciplines and selected works presented The capabilities approach, associated in partic 90 See, for example, in Annex 6. Our examples relate to ecological ular with Amartya Sen (1999) and Martha Jackson 2009. economics, the capabilities approach, heterodox Nussbaum (2003), highlights the multidimen
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sional nature of poverty and well-being, and the corporate sustainability disclosure has focused role of people’s opportunities to do and to be on harm reduction associated with certain what they have reason to value. It also draws externalities, it has paid scant attention to the attention to a range of structural and political implications and impacts of concentration and conditions that are often bypassed within the monopoly power, as well as corporate hierarchy. field of CR disclosure. From the perspective of corporate sustainability accounting, it calls Some contemporary strands of political philos attention to performance across multiple issue ophy and political sociology suggest the need areas related to well-being and, by implication, for effective participation and deliberation in integrated reporting. More specifically, it sug standard setting and corporate sustainability gests the importance of tackling horizontal (Habermas 1996; Beck 2005). In relation to inequalities in the workplace; payment of a the field of corporate sustainability assessment, living wage; effective participation in decision these perspectives call attention to such issues making; and incentives, training and so forth to as: collective bargaining; worker and gender foster a culture of ethics and ESG performance. representation on company boards and remu neration committees; facilitation of and engage Heterodox or “redistributive” economics high ment with associations that can enhance the lights the crucial role that inequality plays in bargaining power of farmers and other sup unsustainable development, and the acceleration pliers; and diversity and representativeness of of inequalities related to (i) income and wealth stakeholders involved in dialogues, partnerships disparities within society in general and cor and decision making. porations in particular, and (ii) the functional distribution of income, that is, the ratio of Institutional economics, à la Elinor Ostrom profits to wages. Within corporate sustainability and systems dynamics à la Jay Forrester (2009) accounting this calls attention to: CEO-worker and Donella Meadows (1998) provide additional pay differentials; the profit/wage ratio; labour insights. Concepts such as polycentricity and productivity versus real wage trends; the balance nested institutions point to the importance between profit and revenues retained in the host of a variety of institutions, interacting and country and outflows abroad; extent of reliance operating at multiple scales, for understanding on tax havens; distribution of value within the the trajectory and scope for change. Concepts value chain among different actors and sectors; such as feedback loops, complexity, unintended concentration or market share; long-term versus consequences and tipping points reveal not only short-term planning horizons and incentives; the limits to growth91 (Meadows et al. 1972) workplace democracy; and trade union organ but also the limits of linear thinking which ization. characterizes much of corporate sustainability disclosure. How corporations influence public Political philosophy and political sociology policy, the importance of value chain analy highlight, inter alia, the role of power relations sis, and the need to factor thresholds into in shaping patterns of distribution and ine sustainability accounting are just some of the quality. At a time when the term “capital” has implications of this perspective. Furthermore, become synonymous with multiple asset classes the concept of “path dependence” suggests that (natural, human, social, financial, and so on), it historically ingrained structural and cultural is useful to revisit branches of classical political elements act as powerful headwinds against pro philosophy, in particular, the Marxist concept gressive change and need focused attention. of capital. This reveals that the economic process associated with the capitalist firm nec Strands of economic anthropology associated, 91 Analysis associated with systems dynamics essarily generates social, environmental, de for example, with Karl Polanyi, also highlight formed the basis of mocratic and competitive contradictions or the role of institutions, such as redistribution, the inquiry called for by the Club of Rome, “externalities”, which derive from forms of reciprocity and regulation, in shaping “market which culminated in accumulation, concentration and domination society” and social protection. Relevant sustain the landmark report, The Limits to Growth, that are part and parcel of the DNA of the ability issues and indicators include: structural published in 1972 profit-maximizing firm (Harvey 2014). While weakening of the labour relation through (Meadows et al. 1972).
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contracting out employment; scale and type The cumbersome term “transdisciplinarity” is a of interaction with enabling financial circuits, concept used to describe a process of knowledge alternative ownership/legal structures; lobbying design and production geared towards practices; and policy coherence in terms of complex problem solving which is informed company ESG objectives being aligned with by drawing on and integrating both different national and international development goals. disciplinary perspectives and those of multiple Similarly, learning from other business and societal actors.93 Lang et al. (2012) define investment models associated with SSE, B transdisciplinarity as a reflexive principle “… Corps and impact investing provides additional aiming at the solution or transition of societal pointers as to what really matters. problems…by differentiating and integrating knowledge from various scientific and societal Feminist theory has played a key role in bodies of knowledge” (cited in Mauser et addressing blind spots within both academic al. 2013). The multiple actors can include analysis and policy making related to businesses, practitioners, policy makers, gender inequality. Feminist economics and regulators, NGOs, trade unions, experts and feminist philosophy not only highlight the academics. And as Jed Emerson reminds us role of women in social reproduction and when warning about top-down approaches unpaid care work, but how this role is a key driven by “experts” and “changemakers”: enabling condition for the market economy “Maybe we need to create greater space and underpins women’s subordination.92 to hear from those whose lives we seek to Cultural traits and power relations associated impact” (2018:4). This, in turn, implies greater with patriarchy foster discrimination in pay space not only for NGOs and trade unions, and promotion, and abusive practices in the but also social movement and community workplace. Demands and time use associated organizers and activists. Accordingly, the r3.0 with care, in turn, reinforce women’s approach reviewed above emphasizes the role subordination in the workplace, as evidenced of multiple “rightsholders” within materiality in their positioning in lower paid, lower quality determination. jobs and under-representation in management positions. From the perspective of corporate Factoring in other stakeholders means not sustainability disclosure, this analysis points to only that a broader range of impacts, concerns the need to pay far more attention to unpaid and preferences can inform decision making, care responsibilities as an impediment to but also different worldviews. In the discourse decent work, and to indicators that capture the and practice of sustainability, it is possible to structural conditions that underpin women’s identify disparate pathways that are informed disadvantage in the workplace and career by very different worldviews.94 structures, notably segmented labour roles and the gender pay gap. It also points to the In their content analysis of 108 GRI reports and key role of women’s collective action through 122 non-GRI reports, Landrum and Ohsowski 92 See, for example, collective bargaining and other mechanisms as (2017) note that the uptake of corporate Fraser 2012, Molyneux a means to women’s economic and political sustainability is driven by the business benefits and Razavi 2002, Razavi 2007, and empowerment. that accrue to the company—in other words, UNRISD 2005. it represents an idea of sustainability that is 93 For more on the anchored in “weak sustainability”. Pelenc et al. relationship between multidisciplinarity, Transdisciplinarity (2015) explain that a weak sustainability world transdisciplinarity view assumes that natural and manufactured or and complexity, see Several of these academic perspectives point to other capitals can be substituted for each other, Clarke and Crane (2018); Hackmann the need for effective participation in standard and that the principle of intergenerational and St. Clair (2012); setting and the process of determining what equity requires maintaining or increasing the ISSC/UNESCO (2013); Mauser et al. (2013) is material. But such participation is often total value of the aggregate stock of capitals for and Tulder et al. associated with a fairly limited range of stake future generations. Furthermore, this position (2014). holders. Current forms of stakeholder dialogue places great store in technical solutions and 94 See, for example, Clapp and Dauvergne may involve CR “experts” and others cut from a monetary compensation for dealing with 2005, Utting 2013. fairly similar cloth. environmental problems.
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Strong sustainability elevates the status of natu Transdisciplinarity, then, is important for ral capital. Rather than simply being a stock enhancing the relevance and credibility of of resources, it is a set of complex ecosystems corporate sustainability disclosure. It can serve that are directly and indirectly crucial for both as a tool to both call out and modify weak planetary health and human well-being. For this sustainability pathways and top-down approaches and other reasons, its substitutability is highly that often divert attention from fundamental constrained. Intergenerational equity demands structural and systemic issues. It can facilitate conserving and regenerating key stocks and eco problem framing, and issue identification and systems associated with natural capital (Pelenc prioritization through a more in-depth and et al. 2015). As Roome (2012) notes, “[w]eak comprehensive understanding of sustainability, and strong sustainability are differentiated by as well as enhancing mutual understanding and their approach to integration, the ambition mutual responsibility (ISSC 2013). of the vision of change, the complexity of the innovation and the extent of collaboration among social, political and economic actors” Participation, power relations (cited in Landrum and Ohsowski 2017:6). and the politics of change
Epistemological blind spots partly explain why the field of corporate sustainability accounting is embedded within the weak sustainability “ paradigm. Interviews by Springett (2003) with The ‘forbidden numeraire,’ middle and senior corporate managers led her whose stocks, flows, to conclude that the “failure to question the and distribution could growth mandate of neoclassical sustainability lend itself to indicators, is at the heart of the managers’ yoke to weak 95 is power. I don’t think Weak sustainability sustainability, which allows them to continue also has implications many of us [know how to reliance on traditional approaches and for investment policy measure power]. I suspect and discounting. language” (quoted in Landrum and Ohsowski that it is not so much Elevating the needs 2017:19). And as Herman Daly (1974) pointed and interests of because it is unmeasurable future generations in out several decades ago, “growthmania” inhibits as because it is not determining what is meaningful change from within business relevant and material politically acceptable circles.95 Some go further, suggesting that requires revisiting the to raise the topic. ...All issue of discounting processes of institutional capture ensure that associated with the more reason to try to this perspective infuses the broader CR industry discounted cash flow measure it. analysis to ensure or ecosystem. Bolton and Landells (2015:615), that calculations to for example, argue that “capitalist management determine the viability Donella Meadows (1998:63) of investments and has taken over the sustainable development project financing do not discourse...in its attempts to control business apply an excessively high discount rate agendas from a top-down power position”. that favours the short-term interests of investors, stockholders When other worldviews and development A common issue in several of the conceptual and bondholders pathways are considered, a clearer picture can and sub-disciplinary perspectives mentioned over those of future generations. As emerge concerning contradictions associated above relates to the need to reconfigure power Doganova (2018:4) with the dominant market-centric pathway relations. In previous decades, influential points out, through this that large corporations tend to pursue, thinkers associated with ecological economics mechanism “we tend to discount the future and structural dimensions that need to be and systems dynamics called attention to the rather than make addressed within both CR policy and public issue of power and political dynamics as a it count”. The scale of discounting—the policy. Transdisciplinarity can also shed light crucial element for determining whether or not “discount rate”—often on the potential and limits of alternative means translated into ends associated with well- runs counter to the recommendation institutional and public policy arrangements being (Daly 1974b; Meadows 1998). While such of the Stern Review and business models, as well as the scope thinkers have certainly influenced the field of (2006) that very low rates should be applied for hybrid models that contain elements sustainability disclosure and reporting, this par in order to protect associated with different pathways. ticular dimension has generally been sidelined. future generations.
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enough to include disadvantaged or subaltern groups and communities whose livelihoods and environments are impacted by a company. In practice, however, the identification of stake holders to be consulted often passes through a management filter that restricts the range of actors and interests involved and whose views influence decision making. An ambitious and socially oriented sustainability agenda must ensure that such voices are present and influential in the stakeholder dialogue process. For this reason, r3.0 distinguishes between “stakeholders” and “rightsholders”, a term that “more clearly aligns to companies’ accountability for direct and indirect impacts on social, economic, and ecological resources” (Thurm and Baue 2018). The term rightsholders can also remind us of the principle of intergenerational equity and the needs of future generations—which, while central to the concept of sustainable development, often get lost in discussions on materiality. Often “the political” is reduced to aspects of governance associated with “participation”, Third, once a range of opinions are heard, it understood mainly as stakeholder consultation is generally management or “experts” who filter for determining materiality. these opinions and decide which are useful and actionable. This approach sidelines other This narrow approach, however, raises several political features of participation related to the concerns. First, it dilutes the meaning of role of negotiation and bargaining in decision participation. “Dialogue”, when understood making. These aspects of governance can as consultation, is not the political concept ensure that stakeholders who are seated at the that emerged in the 1970s within certain table not only have “voice” (which may or may quarters of the UN system and academia, when not be heard), but also that they are “players” participation referred to “organized efforts of who can effectively shape outcomes. the hitherto excluded to increase their control over resources and regulative institutions” Fourth, a political interpretation of participation (UNRISD 2003:69). This definition implied the suggests certain issue areas and indicators that need to transform power relations, as suggested should be considered essential to corporate in the previous discussion about transformative sustainability accounting. These include labour change for sustainable development. rights (see Chapter 8) such as collective bargain ing and freedom of association, which are crucial Second, when applying the concept of partici in efforts to secure decent wages and working pation or stakeholder dialogue within the conditions, and are a core element of the ILO’s field of sustainability disclosure and reporting, definition of decent work. More generally, the particularly in relation to determining materi concept of political empowerment is given ality, it is often a fairly limited range of stake short shrift within mainstream sustainability holders who are consulted. In the process key disclosure as well as in recent innovations. As stakeholders, not least those who are critical noted in the earlier discussion related to value of mainstream approaches and with quite chains, empowerment extends well beyond different worldviews, may be excluded. The labour in the workplace to producers, suppliers formal definition of “stakeholder” (anyone and communities. “Organized efforts”, or affected by or who affects the operations of an collective action, are crucial to getting a fairer organization—Freeman 1984) is encompassing share of the pie.
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Fifth, whereas the combination of collaboration and confrontation has been central to ratcheting up standards associated with disclosure and reporting, a cosmetic version of participation downplays the role of contestation and advocacy associated with “strong sustainability” or alter native worldviews (Utting 2012).
Sixth, given that empowerment is essential to social justice and transformative change, the question arises as to whether it should be considered a key asset (or capital), on a par with natural, social, financial and other physical and relational capitals identified within the integrated reporting approach discussed above. Not only is its appreciation—as in the empowerment of disadvantaged or subaltern groups—key for inclusive development and transformative change, its depreciation (as evidenced in disempowerment) lies at the heart of trends associated with exclusionary and unsustainable development. This would not be an issue if our understanding of “the social” dimension of capital or sustainable development included such aspects as social organization and collective action. In practice, however, “the social” tends to be reduced to aspects of social protection (such as minimum or living wages, the social wage, occupational health and safety, gender diversity in the workplace).
Seventh, factoring in the issue of power relations involves not only a consideration of how to empower the disadvantaged, but also how to control and restrict the concentration of elite power and corporate political influence (see Chapter 9). Clearly public regulation and policy (fiscal, competition, anti-trust, labour market and so on) have a crucial role in this regard. But the CR industry can also play a role in establishing principles and standards related to such aspects as lobbying, political campaign contributions, the revolving door, corruption and conflict of interest. It can also demand that companies disclose data that reveal the concentration of power, whether it relates to market share, the distribution of value added within global value chains, or labour-management relations.
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Concluding Remarks
Part 1 of this report has sought to set the The complexity challenge has focused attention scene for the multi-year research-action pro on the need to simplify disclosure. Reliability ject on Sustainable Development Impact implies the need to minimize problems of Indicators being carried out by UNRISD. It selection bias and self-promotion, as well as to has (i) taken stock of progress in the field of focus on concrete implementation measures sustainability disclosure and reporting, (ii) and actual performance rather than simply identified ongoing challenges and debates, as allowing statements of corporate policy, on say well as recent developments and innovation, gender equality, to serve as a proxy for improved and (iii) suggested a number of avenues of performance. Relevance and materiality require inquiry for rethinking disclosure along a refocusing on issues that are key for realizing the more transformative pathway. transformational vision of the 2030 Agenda, rethinking what is prioritized in terms of The analysis suggests that the evolution issues and indicators, and ensuring that this and institutionalization of corporate sus information effectively assists governments and tainability disclosure and reporting have other stakeholders in their efforts to reform managed to significantly expand both the public policy and corporate behaviour. universe of firms engaged and the range of issues addressed. Through time there Part 1 also casts doubt on whether various has been a shift from a highly selective risk mainstream initiatives to address these challenges and reputation management approach to are really up to the task. The discussion in more comprehensive ESG disclosure and Chapter 3, of recent cutting-edge innovations, reporting. To date, the trajectory of progress identified several important developments, not related to disclosure and reporting has least accounting frameworks and methods aimed been characterized by frequent incremental at capturing impacts related to multiple capitals, adjustments to incorporate new issue areas internalizing externalities and measuring and indicators, adhere to core accounting progress in relation to sustainability norms. This principles, and strengthen management has also led to a more rigorous definition or systems, including reporting and assurance. precise understanding of key terms (see Annex From the perspective of sustainable and 11). Several of these approaches emphasize the inclusive development, however, this need to tackle what is one of the weakest aspects approach remains seriously constrained. of disclosure, namely, the tendency to only Recent innovations, described in Chapter report one part of the picture while ignoring the 2 and Annex 4, clearly indicate a growing context. Hence, for example, data may indicate a sense of urgency regarding the need to decline in carbon emissions but the user of the tackle ongoing accounting issues related to data is left not knowing what a tolerable amount complexity, reliability, credibility, relevance of GHG emissions might be from the perspective and materiality. This urgency is connected of science-based targets. Similarly, data may in no small measure to heightened awareness show an increase in basic wages but fail to relate both of climate change and of the SDGs. this to trends associated with profits, labour productivity, real wages, and the remuneration of senior management or the CEO.
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The above analysis points to the following Incorporating the preferences unresolved issues and avenues for rethinking of “rightsholders” and future corporate sustainability assessment and dis generations in the determination closure. of materiality
While the question of materiality is central Setting ambitious goals not only to innovations and debates in the field in the environmental but also the of sustainability disclosure, it is often the social domain preferences of management, shareholders and mainstream CR industry players that hold Within the field of corporate sustainability sway in the determination of what information accounting, considerable thinking and is key. While the principle of multistakeholder strategizing have gone into addressing the dialogue is generally accepted within this field, environmental crisis manifested in global social dialogue often lacks diversity in terms warming, pollution, waste and resource of stakeholder representation and worldviews. depletion. The same cannot be said of the social If corporate sustainability disclosure is to be malaise associated with the world of work and effective as a tool for transformative change, gross inequalities of income and wealth. Much the above analysis suggests that other concerns more thinking needs to go into how business and preferences need to be factored in, not least can transition along a continuum from those of multiple “rightsholders” impacted by reducing the level of harm associated with business activities and perspectives that reflect business-as-usual at one end to transformative upon the challenges to be faced by future strategies aimed at both planetary health generations. It is likely that opening up the and meaningful social development at the process to such preferences and perspectives other. The level of ambition that is emerging would shed light on the root causes of complex in relation to environmental standard- and sustainability problems, and illuminate target-setting needs to be replicated in relation solutions and specific issues and indicators to to social dimensions. assess progress.
Expanding the definition Addressing the blind spots of of “the social” beyond selected distributive justice, inequality stakeholders and social protection and power
While the social dimension of sustainable The discussion of the transformative approach development is by definition a core element of in Chapter 3 highlights key structural and ESG disclosure, its meaning is often diluted. systemic issues that need to be factored into the It tends to relate to selected social actors or CR agenda far more explicitly than has been stakeholders and to social protection or social the case to date. It is imperative to address these security—that is, the basic living conditions of blind spots. As norms associated with human, workers, producers and communities. Usually women’s and children’s rights have infused missing is a more expansive sociological or CR discourse, the question of “horizontal political economy definition of “the social”— inequality” (between groups) is at least on the one that not only recognizes a broader CR policy table. As examined in Chapter 6, range of social actors but also emphasizes however, key aspects of gender equality are social relations, social institutions, social often marginalized, not least those related organization, and empowerment through to caregiving. Aspects of “vertical inequality” social mobilization and collective action. reflected, for example, in CEO-worker pay From this perspective, the notion of social gaps, skewed distribution of income within development also embraces concerns for value chains and regressive taxation, often effective participation and democratic gov receive short shrift. Similarly, the question of ernance. intergenerational equity receives lip service but little systematic treatment.
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There is also a need for a more political under indicators. What this analysis suggests is that standing of participation and empowerment— several key issues—such as vertical inequality, one that emphasizes not only stakeholder power relations, institutional capture, absolute consultation and the economic empowerment decoupling, workplace democracy and aspects of workers, producers, small enterprises and of gender equality associated with care—are communities through market access, financial not those that are typically emphasized within services and training, but also political empow the mainstream CR industry. This in turn erment. Issues and indicators related to raises the question of whether mainstream labour rights, workplace democracy, collective stakeholder dialogue processes to gauge bargaining, and the collective organization materiality are fit for purpose. This analysis, of producers and small enterprises are often we believe, points to the importance of marginalized. A political understanding drawing on multiple disciplines and different of change also needs to focus on the ways worldviews to determine what is relevant and and means of constraining and redirecting material. corporate political influence. Transformative change requires not only greater “voice” for The vantage point of multidisciplinarity and weaker groups in society but a reconfiguration transdisciplinarity indicates not only critical of power relations. issues and indicators that need to be factored into corporate sustainability disclosure but Promoting knowledge-driven also alternative business models of ownership dialogue and standard setting and governance, associated with specific types of enterprise and finance, as well as different Processes for determining what is relevant and varieties of capitalism. Furthermore, such material not only need to be inclusive; they an approach to learning suggests the scale of also need to be knowledge driven. We suggest the sustainability challenge and the level of that conceptual and multidisciplinary analysis ambition required when establishing targets is important for expanding the boundaries against which to measure progress. In the of how the social dimension is understood, absence of stakeholders who can effectively and in particular for highlighting issues of represent the interests of future generations, inequality, power relations and other structural it is perhaps this line of inquiry that allows conditions that are key for addressing the root us to approximate what is required if we are causes of both unsustainable development serious about the goal of intergenerational and sustainable futures. equity, which supposedly lies at the core of sustainable development. A recurring theme throughout this report relates to the concern that mainstream The connection between knowledge and practices, innovations and processes aimed targets has been explicitly recognized in at determining what is relevant and material recent years, with calls for disclosure and may be missing or marginalizing key issues. reporting to relate to science-based targets. Given this situation it is useful to stand back It appears, however, that the main science and reflect on what is important from the being considered is earth or climate science, perspective of ex/inclusionary development and the chief targets are environmental. The and un/sustainable development. For this notion of SBTs needs to extend to the social reason, we ventured into “big picture” arena. Several of the disciplinary perspectives theorizing and conceptual analysis, in the outlined in Chapter 3 provide a useful belief that reviewing the work of several starting point for identifying science-based prominent thinkers in the field of development content and normative targets related to social and societal change, as well as multiple dimensions of sustainable development, as branches of academic disciplines, can tell us well as democratic governance. a lot about both root causes and solutions. From there we can think about relevant corporate sustainability accounting issues and
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PART 2 Indicators and Targets for Transformative Change
Introduction
The above review of the evolution and current state of corporate sustainability disclosure identified various blind spots within reporting standards and conventional metrics related to ESG disclosure. These areas of omission are key because they relate to what might be regarded as the root causes of unsustainable development, that is, structural conditions that to some extent predetermine opportunities and outcomes. Important in this regard are inequalities related to income distribution, gender biases and skewed power relations. These issue areas are crucial components of the social dimensions of sustainable development, yet they are often marginalized in the data and narratives associated with sustainability reporting.
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While an increasing number of corporations (i) fair remuneration; are engaging more proactively with the (ii) gender equality; Sustainable Development Goals (SDGs), (iii) corporate taxation; those related to gender equality (SDG 5) (iv) labour rights; and and reducing inequalities (SDG 10) have (v) corporate political influence. received less attention. Dealing with structural blind spots is one part of the challenge Each chapter is structured as follows. First, we of realizing the transformational vision outline in what way conventional disclosure inherent in the 2030 Agenda for Sustainable and reporting is problematic, and then Development. Another part relates to the so- suggest various indicators that might be fit for called sustainability context. This involves purpose from the perspective of transformative establishing norms related to sustainability change. Next, we discuss methodological thresholds which can serve as targets against issues regarding how key terms and concepts which to measure progress along a sustainable associated with certain standards and indicators development pathway.96 Without such a are defined and applied in practice before context, it is impossible to know whether finally considering possible targets that could be the progress reported via conventional adopted by corporations in order to effectively metrics is part of an incrementalist agenda measure their progress towards sustainable that essentially tweaks business-as-usual, or development. Key indicators and targets, as whether it is meaningful from the perspective well as ongoing challenges and future work that of sustainable development and its core needs to be done, are summed up in a final elements of integrated development, inter- section. generational equity, regeneration and thriving. Furthermore, such measurement demands far more attention to quantitative performance indicators.
Part 2 of this report delves into the specifics of disclosure for transformative change by identifying key performance issues, indicators and related normative benchmarks and targets pertaining to the social dimensions of sustainable development. It begins, however, by looking at several significant advances now occurring in the field of environmental disclosure and reporting. Such developments provide important lessons regarding how disclosure might shift from cherry picking and incrementalism to a more rigorous process consistent with the notion of transformative change. Social accounting, in contrast, lags well behind and could benefit by replicating the level of ambition currently emerging in relation to environmental disclosure and reporting.
The remainder of Part 2 examines five key performance issues and related indicators that might enhance the quality of social accounting 96 See Thurm et al. 2018, Thomas from a transformative perspective. These issue and McElroy 2016, areas, which relate to blind spots or under- MaterialityTracker: http://www.materiality reported aspects of economic, gender and tracker.net/ political dimensions of inequality, are:
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CHAPTER 4 Learning from the Environmental Dimension
Before delving into the black box of measurement and disclosure associated with social dimensions of sustainability accounting, it is instructive to draw lessons from the environmental field. Much has changed since the term “greenwash” was popularized in the 1990s97 to highlight the tendency of corporations to disclose environmental information and data via reports that often misinformed stakeholders about their real environmental performance and impact. Despite various ongoing concerns, noted in Part 1 of this report, the quality of environmental disclosure shows some signs of improvement. Recent developments suggest a heightened level of rigour and ambition that could usefully be replicated in the social domain. This is apparent in at least four 97 See Greer and Bruno respects. 1996.
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First, efforts are under way to address what, until and its broader sphere of influence. Regarding recently, was a blind spot within environmental GHG emissions, corporations are now being reporting—namely, the tendency to focus on called upon to report not only on Scope 1 metrics associated with resource or emissions emissions related to the direct operations of intensity rather than absolute reductions in the facilities they own but also on Scope 2— resource use, waste and emissions. As noted the energy services they rely on—and, more in the 2030 Agenda, development actors significantly, Scope 3, which refers to emissions need to “endeavor to decouple economic associated with their suppliers, distributors and growth from environmental degradation” consumers (WRI and WBCSD 2011). This is (SDG 8, Target 8.4). While this principle has particularly important as it is Scope 3 that often a long pedigree, attention within sustainability accounts for the vast bulk of the emissions accounting tended to focus on what is known associated with a particular product or service.98 as relative decoupling, that is, reductions While the measurement of Scope 3 emissions in negative environmental externalities (for is extremely challenging, at least it is now being example, emissions, waste, pollution and recognized as an issue within sustainability natural resource depletion) relative to a disclosure. Ultimately, it may prove impossible company’s growth measured in revenues or for a company to significantly reduce Scope 3 production volume. This often means that impacts, particularly given its limited control negative externalities—such as greenhouse gas over suppliers and consumers,99 but the data emissions—continue to increase in absolute themselves are important. They allow managers terms although indicators related to resource to identify those specific activities in the value intensity show improvement (see Table 4.1). chain where remedial action may be possible. Climate science and internationally agreed Furthermore, stakeholders more generally targets to deal with global warming indicate that surely have a right to know (i) the scale of the a focus on absolute reductions in emissions, or entire environmental footprint associated with absolute decoupling, is essential for planetary the goods and services a company produces and health and, by implication, intergenerational the consumption patterns it promotes; (ii) where justice (Jackson 2009). Unlike reductions in a company is positioned on a sustainability resource intensity, absolute decoupling requires pathway that factors in such a comprehensive fundamental changes in investment, production footprint; and (iii) the scale of the challenge and consumption patterns. In other words, it of transforming patterns of investment, challenges, rather than aims to co-exist with, the production, trade and consumption associated dominant growth model. with its core business. Crucially, reductions in Scope 3 emissions can shed considerable light While some standard-setting frameworks, such on trends and prospects related to the absolute as the International Chamber of Commerce’s decoupling referred to above. (ICC) Business Charter for Sustainable Development, emphasize resource intensity, Third, as noted earlier, improvements in 98 Patagonia, for most leading standard setters like the GRI and performance tended to be incrementalist in example, reports the World Federation of Exchanges (WFE) nature. Companies adhering to CR principles that 86 percent of its carbon emissions generally call on companies to report on aimed to reduce levels of harm without any come from the raw both. Often, however, companies present data reference to meaningful longer term quantitative materials it uses and their supply chains related to both aspects but emphasize progress targets. In short, conventional environmental (Patagonia 2019). associated with relative decoupling in narrative reporting failed to contextualize performance PUMA estimates that reporting. in relation to sustainable development targets. Scope 3 emissions accounted for 81.6 In this way corporations could project an image percent of their Second, the qualitative leap forward is also of responsible environmental action without total in 2018 (PUMA 2019:16). reflected in the shift away from a focus on ever having to assess whether that action was
99 performance related only to activities directly meaningful from the perspective of sustainable See, for example, Patagonia 2019, controlled by the company in question. Instead development. Today, companies are being Unilever 2019a and Financial Times 2019a attention is now also being paid to performance urged to assess progress in relation to science- referring to Repsol. associated with the company’s global value chain based targets. Not only are they encouraged
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to go beyond a focus on reducing emissions Table 4.1. Leading emitters with increasing intensity by reporting progress related to emissions trend and high emissions intensity absolute emissions but they are also called to performance meet targets consistent with climate science. Decoupling GHG Index Index (above 100 (above 100 The recommendations of the Task Force on Company indicates indicates 100 increasing revenues Climate-related Financial Disclosures are emissions trend) increasing faster clear in this regard: than emissions) Organizations should describe their Coal India 111 107 key climate-related targets such as Volkswagen AG 101 106 those related to GHG emissions, water Honda Motor Company 109 107 usage, energy usage, etc., in line with Novatek OAO 113 133 anticipated regulatory requirements or market constraints or other goals. … In Nissan Motor Co. Ltd. 107 109 describing their targets, organizations Rolls-Royce 102 107 should consider including the following: Duke Energy Corp 101 125 whether the target is absolute or Dongfeng Motor Group 102 145 intensity based, timeframes over which Toray Industries 103 111 the target applies, base year from Westmoreland Coal Company 119 109 which progress is measured, and key Tatneft OAO 103 120 100 Established in 2015 by performance indicators used to assess the Financial Stability Renault 103 121 Board (FSB), the TCFD was progress against targets. Where not BMW AG 106 111 tasked with developing apparent, organizations should provide a consistent climate-related Source: Based on Lubin et al. 2017. financial risk disclosures description of the methodologies used to for use by companies, calculate targets and measures (2017:23). banks and investors. Following the publication of the recommendations A study of emissions trends among the world’s agement and selected stakeholders (such as in June 2017, the UNEP 101 Finance Initiative initiated 250 largest corporate emitters notes that standard-setting and certification agencies). TCFD Pilot Projects for company progress in relation to the long-term Rather, it is increasingly informed by science, banks, investors and transformative challenge “can be assessed by with scientific evidence and analysis deter insurers to develop practical approaches looking at whether a specific emitter is reducing mining not only key performance issues and for the assessment and aggregate emissions across all scopes [1, 2 and indicators but also medium- and long-term disclosure of climate risks and opportunities (UNEP 3] in line with the latest scientific guidance, targets. Finance Initiative: https:// or roughly 3 percent per year through 2050” www.unepfi.org/climate- to keep global warming to below 2 °C above It should also be noted that some progress is change/tcfd/). pre-industrial levels, as agreed in the Paris apparent in relation to the way in which data are 101 Known as the Global 250, this is a group of publicly Climate Agreement (Lubin et al. 2017:2). While presented. As pointed out in Part 1, providing traded businesses that corporate sustainability performance is still well annual snapshots, or even data for two or three produce approximately one-third of global annual below this benchmark (with the group of largest years, is not user friendly; indeed this can mask anthropogenic emissions emitters having a flat emission trend instead more than it reveals. Guidance provided by when including their value of a decline), at least a consensus is emerging the Task Force on Climate-related Financial chains (Lupin et al. 2017). 102 It should be pointed out, that key performance indicators and targets Disclosures (TFCD) notes that metrics should however, that the data need to be consistent with the transformative be provided for historical periods to allow for ignore Scope 3 emissions challenge. The same cannot be said for the trend analysis. While Exxon Mobil’s emissions associated with the combustion of petroleum social dimension. reduction performance has been poor, at least products at the consumer it is possible to (partly) gauge this from the data end of the value chain, 102 which accounts for the Fourth, cutting-edge approaches to environmen series it provides. Typically, data interpretation bulk of emissions. See tal performance accounting have transformed would be obscured by annual snapshots, As You Sow. Exxon Mobil Climate Change Risk the process of materiality determination, or anecdotes and selective narrative reporting. In Reporting. Accessed 20 how to decide what to measure. It is no longer 2014, the company started reporting data over a April 2020. https://www. asyousow.org/resolutions/ dependent simply on the opinions, preferences, 10-year period to show performance trends over 2019/12/18/exxon-mobil- priorities and decision-making power of man time (see Table 4.2). climate-change-risk-reporting
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The above discussion highlights a number of change. Taking the social dimensions seriously useful developments within environmental within sustainability accounting means disclosure and reporting in recent years. addressing these aspects. In the chapters that They are not meant to suggest, however, that follow, we focus on five issue areas which are progress related these standards and metrics key in this regard. is rapidly becoming the new normal within corporate environmental disclosure, let alone environmental performance. Indeed, many of the old limitations and biases in reporting persist.103 But if companies begin to step in line with these approaches, stakeholders will be able to get a far better handle on the state of play regarding environmental performance.
The social dimensions of sustainability performance accounting (including socio- economic and socio-political factors) could usefully take a leaf out of the contemporary environmental playbook. Far more attention needs to be focused on indicators related to 103 A Thomson Reuters study (Moorhead and Nixon 2016) transformative blind spots, the global value covering performance from chain, concrete targets, and the contribution 2010 to 2015 reveals that the 500 largest businesses of (social) scientific analysis to materiality in the world which account determination and target setting. In Part 1, we for 10 percent of Scope 1 suggested that the social dimensions within not and 2 global GHG emissions (a far higher percentage if only sustainability accounting but also much of Scope 3 is included) actually public policy related to transformative change increased their emissions by 1 percent between 2010 tend to be reduced to social protection issues, and 2015, rather than such as occupational health and safety, and embarking on the required reduction trajectory. Of the compliance with minimum wage legislation. 20 largest emitters, only Given short shrift are the structural conditions nine managed to reduce their emissions between associated with distributive justice, inequality 2010 and 2014. A 2019 and power relations that determine people’s life study of Australia’s biggest chances and the possibilities for transformative companies, in sectors confronting the most significant climate risks, found that many still failed to publish full climate risk Table 4.2. Exxon Mobil emissions* analysis. Out of 72 ASX100 firms, FOE Australia affiliate Absolute GHG emissions (net equity, CO2-equivalent emissions) millions of tonnes Market Forces found that just 25 percent disclose 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 emissions intensity, even less (22 percent) report absolute emissions, while 126 123 126 128 126 127 123 122 123 122 51 percent of firms reviewed fail to disclose any emission Upstream and downstream GHG emissions normalized (net equity, CO2-equivalent emissions) tonnes reduction targets at all. per 100 tonnes of throughput or production While the study depicts a significant increase over the previous year in the 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 proportion of firms reporting Scope 1, 2 and 3 emissions, Upstream 21.0 20.1 20.5 20.7 22.3 23.2 23.9 24.9 24.3 24.6 just 47 percent report all three, 42 percent report only Scope 1 and 2, and 11 Downstream 21.0 21.0 20.8 20.0 19.6 19.7 19.2 18.9 19.5 18.6 percent fail to disclose any emissions (Market Forces * 2019 Energy and Carbon Summary - Metrics and Targets, exxonmobil.com. Accessed 20 December 2019. https://corporate. 2019). exxonmobil.com/-/media/Global/Files/energy-and-carbon-summary/2019-Energy-and-Carbon-Summary_archive.pdf
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CHAPTER 5 Fair Remuneration
Introduction
Since the turn of the millennium the concerns of the international development community regarding social dimensions of development have broadened beyond issues such as health, education, poverty and social exclusion to also include income and wealth inequality.104 More recently the SDGs, and SDG 10 in particular, have further reinforced the notion that vertical inequality in the distribution of economic 104 Social scientific Humanity” prompted resources needs to figure centrally in efforts analysis has played by advocacy work by to promote sustainable development.105 This a key role in this groups like Oxfam have process, not least via also fixed the spotlight chapter examines what corporations can do to a series of flagship on vertical inequality effectively measure sustainability performance and other reports (Oxfam International related to income inequality within the firm. by United Nations 2019). agencies, the World 105 This requires going beyond conventional Bank and think tanks In a context where international metrics associated with unequal pay for equal (UNDP 2005, World Bank 2005, UNRISD development agencies work, or indicators that compare wage levels 2010a, Anderson and think tanks were highlighting multiple to the minimum wage or industry norms. and O’Neil 2006). Academic research by negative impacts of Here the focus is on measuring and assessing Piketty and others has inequality in relation fair remuneration along two dimensions, provided evidence of to poverty reduction, the growing disparities social cohesion, namely, CEO-worker pay ratios, and wage levels in income and wealth efficiency and growth, compared to the living wage. In subsequent associated with it became apparent the top 0.1 percent that inequality chapters, other aspects of unfair remuneration (Piketty 2014, Piketty was a blind spot are addressed, in particular, gender inequality and Saenz 2003). in the Millennium Development Goals associated with the gender pay gap (Chapter Banner headlines such as “Last Year (MDGs), and one 6) and skewed power relations associated with 26 People Owned the that needed to be addressed in any post- collective bargaining and corporate policy Same as the 3.8 Billon People Who Make Up MDG agenda, as it is influence (Chapters 8 and 9). the Poorest Half of now in the SDGs.
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Income inequality within the firm • the remuneration of the CEO is relatively lower; The CEO-employee pay ratio is an emerging • the proportion of variable performance indicator within corporate remuneration (such as bonuses or stock sustainability reporting. This reflects not only options) within the total CEO package media and civil society concerns about now is relatively lower; widely publicized disparities in income and • there is less leverage in the bonus wealth as well as how corporate elites appear (difference between target and to be driving this perverse phenomenon, but maximum bonus); also growing concern among governments and • increasing or decreasing the use of long- investors. Policy makers have been confronted term incentives is not important; and with a wealth of evidence about why inequality • the CEO-employee pay ratio is lower. matters from the perspective of economic and social development as well as good governance Other research suggests that an extremely high (see Box 5.1). Investors are paying more attention level of executive pay may be partly determined to the issue of vertical inequality partly because by performance, but corporate culture may be of increasing evidence that CEO pay may as, if not more, significant: not reflect corporate financial performance. The salary package … stands as evidence of Research conducted by the Vlerick Business the potential strength of the company, of School into 861 companies in six European its capacity to play in a special league. It is countries found that firms which delivered a straightforward means to demonstrate strong financial performances over a sustained reputation, legitimacy, and financial period shared the following characteristics power. Put simply, it is the economy’s (Baeten and Said 2016):106 unique impression management tool.
Box 5.1. Why does inequality matter?
The intellectual struggle to reincorporate vertical inequality in the portfolio of mainstream development concerns was intense as it involved overcoming not only a blind spot in conceptualizing and measuring development but also convincing key actors that inequality actually mattered both from a moral and a development perspective. Academic studies have highlighted multiple economic, societal and public policy implications.
Referring in particular to the United States, Boushey et al. (2017:14-16) note the following: • “[I]nequality is a factor that leads enormous investments in resources to deliver little of ultimate value in the sense of human well-being and human satisfaction”, as noted in the case of the distribution of medical care in the United States. • Established or inherited wealth “is by its nature hostile to the creative destruction that accompanies rapid economic growth”. • “[H]igher inequality will slow growth by depriving the nonrich of the resources to invest in themselves, their children and their enterprises … [and] by focusing effort on helping the rich keep what they have at the cost of squelching the development of the new”. • Elites are opting out of public schools (and health services) and, as a result, may be less inclined to support the tax regimes underpinning public services. Furthermore, “reliance on private wealth to finance higher education has already made that sector far more unequal…”. • As a result of increased political and policy influence, elites can manipulate governments to “solve 106 See “The Best problems of concern to the plutocrats and not the people”. Performing Companies • As elites gain first-mover advantage in new sectors involving, for example, platform-based firms, their Pay their CEOs Relatively Less”. influence may make it extremely difficult for policy makers “to rein in the anticompetitive bent of … Vlerick Business those who arrive first”, thereby stifling innovation. School (20 December • Inequality can reinforce the ability of employers “to pick winners and losers” and drive them “to 2017). Accessed 30 indignant outrage by the idea of a collective worker voice”. It can also lead to greater segmentation or November 2019. “fissuring”* within the workforce, which can marginalize the position of manual workers. https://www.vlerick. com/en/research-and- • “An unequal society is one in which who you know matters more to your ultimate well-being than what faculty/knowledge-items/ you know … [A] society in which the distribution of well-being is determined by ‘who the rich like’ is knowledge/the-best- unlikely to preserve the gains of racial and gender equality made during the Social Democratic era”. performing-companies-pay- their-ceo-s-relatively-less * Boushey et al. 2017 citing Weil (Chapter 9).
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This game is a ‘ballgame’ too, although Similarly, what CEO remuneration should not one played on the pitch, but in the be compared to also varies considerably. Most company’s pants, and the masculine indicators focus on “employees” as opposed smell is no coincidence. Whether to “workers”. The relevant GRI standard (see the individual manager is worth the Annex 8) considers the legitimate comparator money and whether he or she meets to be the median of the wages and salaries of all the behavioural and performance other employees. Some ratings agencies allow expectations is not unimportant, but it companies to report either the median or the is distinctly – secondary. Reward systems mean average. are a show of power (Wetzel 2014). Given that workers, managers and other C-suite In other words, the issue of income and wealth officers are all factored into the category of inequality is intimately connected with that of “other employees”, the median and mean the ongoing empowerment of corporate elites average can vary depending on the employment and the disempowerment of workers, issues that and pay structure. While mean averages may be are addressed in later chapters of this report that easier to calculate, given the information already deal with labour rights and corporate political on hand, the median—the mid-point of a set of influence. values—is generally considered to reflect more accurately the pay level of “typical” employees, 107 “… a company will be permitted to select The upshot of this restructuring of economic notably in contexts of skewed distribution. The its methodology and power relations has been a shift in (i) the average pay of “other employees” may or may for identifying its median employee functional distribution of income, that is, the not bear a close relation to the wages of the and that employee’s ratio of profits to wages which, over time, has lowest paid workers, who presumably should compensation, including through moved in favour of profits, and (ii) the capacity be a key focus of attention in any assessment statistical sampling of senior management to claim a greater share of inequality. Accordingly, when calculating of its employee of the income pie. A convenient indicator pay ratios, the EPI focuses more directly on population or other reasonable methods.” that sheds light on this situation is the ratio of “workers” as opposed to employees, defining Further, “[t]he workers’ pay to that of the highest paid executive workers as employees in production and non- rule also permits companies to make in a particular company. Generally, this would supervisory positions when calculating pay the median employee be the CEO. ratios in the United States. determination only once every three years and to choose This discussion suggests that the following KPIs In its 2015 ruling related to the implementation a determination date within the last three are relevant: of the Dodd-Frank Wall Street Reform months of a company’s • CEO-worker or -employee pay ratios; and Consumer Protection Act, the United fiscal year. In addition, and States Securities and Exchange Commission the rule allows companies to exclude • percentage annual increase in CEO (SEC) requires publicly traded companies non-U.S. employees or senior management remuneration to disclose, from 2017 onwards, the ratio of from countries in which data privacy laws or compared to that of workers or other the compensation of the CEO to the median regulations make employees. compensation of employees. The ruling, companies unable to comply with the rule however, provides companies considerable and provides a de CEO-worker pay ratio leeway regarding the methods used.107 minimis exemption for non-U.S. employees. Methods for calculating CEO-worker pay The rule does not apply ratios vary considerably. The calculation of What might a fair CEO-worker to smaller reporting CEO salaries often omits certain elements pay ratio target look like? companies, emerging growth companies, that make up the full compensation package. Various reference points could inform the foreign private issuers, A comprehensive definition is that used process of determining fair benchmarks and MJDS filers, or registered investment by the Economic Policy Institute (EPI) for targets. companies.” U.S. its study of CEO-worker pay gaps in the Securities and Exchange Commission. United States. This includes salary, bonuses, Historical norms that characterized periods that 2015. Accessed 10 restricted stock grants, long-term incentive were considered “fair” are often referenced. September 2019. https://www.sec.gov/ payouts and options realized or options During the so-called golden age of capitalism, news/pressrelease/2015- granted (Sabadish and Mishel 2013). or the era of “embedded liberalism” in the 160.html
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decades following the Second World War, Table 5.1. CEO pay to average income* ratio economic growth and public policy in many (Selected countries, 2015-2016) industrialized countries worked relatively well South Africa 541 for both corporate elites and workers (Ruggie India 483 1982). During this period, the CEO-worker pay US 299 ratio was approximately 20 or 30 to 1. It has UK 229 been noted that during the 1970s a criterion Canada 203 for the determination of CEO pay in the Switzerland 179 United States was intra-firm equity, that is, how Germany 176 CEO remuneration compared to that of other Spain 172 employees within the same firm. In subsequent Netherlands 172 decades, however, there was a shift from this Israel 119 internal equity to what can be called external Republic of Korea 114 equity, that is, the determination of CEO Australia 113 salaries focused more on what other CEOs earn Norway 101 (Clifford 2017). Denmark 82 Sweden 75 Another reference point could be pay ratios France 68 associated with what one might term gentler Hong Kong 66 varieties of capitalism, as in Nordic countries Malaysia 66 like Denmark, Finland, Norway and Sweden Singapore 65 where Bloomberg data comparing CEO pay Japan 62 to average income reveals ratios of 61-101 to 1. Finland 61 Similarly, in several Asian jurisdictions (Hong Austria 47 Kong, Japan, Malaysia and Singapore) ratios are China 43 in the 60 to 1 range. This is well below the level Poland 24 108 The author of the found in countries like Canada, the United Thailand 4 South Africa study Kingdom, the United States, India and South Source: Lu and Melin 2016. points out, however, * “average income” refers to per capita gross domestic that the reported pay Africa, where ratios ranged from 203-541 to 1 product adjusted for purchasing power parity. ratios would likely (see Table 5.1). have been significantly higher had outsourced workers also been One might also look to other enterprise compensation level for the CEO was below included in the 111 calculations. models, such as large cooperatives or state- USD 500,000. Taking United States GDP per owned enterprises (SOEs). The Mondragon capita adjusted for purchasing power parity,112 109 See “The land of less pay: China Corporation, for example, which has this CEO remuneration level would amount to combats corruption approximately 75,000 employees, has a pay a ratio of about 11 to 1. through cap.” World Finance. 6 November ratio of 9 to 1 (Heales et al. 2017). Government 2014. Accessed 30 regulations introduced for French SOEs in In Canada, the Wagemark Foundation oversees November 2019. https://www.worldfinance. 2012 capped CEO pay at 20 times the average an international wage certification system for com/strategy/china-the- salary of the lowest paid 10 percent of workers. organizations with a ratio of 8 to 1 or less. land-of-less-pay Similarly, among a group of South African The Wagemark Standard compares the total 110 KLD was acquired by SOEs, the highest ratio was around the same earnings of the highest paid employee with the RiskMetrics in 2009. level (Francis 2017).108 A ratio of 10 to 1 was average pay of the bottom decile of earners.113 111 See Appendix A. Criteria of RiskMetrics- proposed as a new benchmark for SOEs as part KLD social ratings in of China’s anti-corruption drive in 2014.109 The highest bar for fairness, however, seems to Becchetti et al. 2013. be set by the general public. A survey of some 112 World Bank data Various ratings, certification and research 55,000 people in 40 countries found that indicate that US per capita GDP at PPP was organizations have also provided guidance for perceptions of an ideal ratio between CEO and USD 46,437 in 2006. determining fair pay ratios. During the boom unskilled workers’ pay ranged from 2 (Denmark) 113 See Wagemark.org at years prior to the 2008-2009 global financial to 20 (Taiwan, Province of China) to 1, with 4.6 http://www.wagemark. 110 org/about/. Accessed crisis, the well-regarded ratings firm KLD to 1 being the global average (Kiatpongsan and 30 November 2019. assessed a company positively when the total Norton 2014).
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One study of fairness in relation to CEO- rate would rise in subsequent pay ratio bands, worker pay ratios makes the point that there is reaching 5 percent above 500 to 1.116 a need to distinguish between fairness from a utopian perspective and fairness in the context In the run-up to mandatory disclosure of CEO- of actually existing systems and institutional worker pay ratios, called for under Dodd-Frank settings (Venkatasubramanian 2017). Recent and the SEC ruling, regulatory proposals fiscal regulations and policy proposals provide were tabled in several other jurisdictions pointers as to what fair ratios in the real world including Minnesota, Massachusetts, Illinois, might look like. Several initiatives in the United Connecticut, Rhode Island and San Francisco States have emerged at local, state and federal (Center on Executive Compensation 2019). levels. A number of cities and municipal These initiatives aimed to impose fees or varied authorities have enacted, or are considering, rates of tax based on pay ratios (Mishel and fiscal policies that target corporations with Schieder 2018). A Senate Bill in Rhode Island high CEO-worker pay ratios. An initiative proposed to give corporations with CEO-worker introduced in Portland, Oregon in 2018 set a pay ratios of no more than 25 to 1 preferential threshold of 100 to 1. Above this level a surtax treatment in state contracting. Similarly, in of 10 to 25 percent is levied depending on the Canada, the Québec solidaire party proposed ratio (Anderson and Pizzigati 2017).114 Branko in 2018 the introduction of the “Bombardier Milanović observes that this “seems [to be] Clause”, under which state aid in the form of the first tax that targets inequality as such … It subsidies or tax credits would only be provided treats inequality as having a negative externality, to companies with a 30 to 1 ratio (or lower) for like taxing carbon emissions” (The Guardian, CEO to lowest paid employee.117 114 Tax revenues will be 2016). channeled towards affordable housing and Depending on the country and institutional other local needs. Under a legislative proposal introduced in 2014 context, the above yardsticks suggest that 115 See California in California (California Senate Bill 1398) the normative targets that reflect a fair pattern of Legislative Information. Accessed 20 tax rate of publicly traded companies would allocation associated with principles and goals December 2019. vary depending on pay ratio (see Table 5.2), of equality and sustainable development should Available at: https:// leginfo.legislature.ca.gov/ remaining at 8.8 percent for companies with a lie in the range of about 10-50 to 1, if not below. faces/billTextClient pay ratio of 50 to 1 or below, and increasing .xhtml?bill_id=20192 thereafter by 1 percent for every additional Other dimensions of vertical inequality 0200SB37 band, up to a maximum of 13 percent for Beyond the question of income inequality 116 See “Sanders, Lee, and Tlaib Partner to companies with a pay ratio over 300 to 1. While within the firm, there is also that of income Combat Outrageous this initiative was not successful, a similar inequality within the broader value chain. CEO Pay.” Accessed 115 3 December 2019. proposal (SB-37) was reintroduced in 2019. Only touched upon in this report, this is https://www.sanders. an issue that deserves considerably more senate.gov/newsroom/ Fifty to one is also the ratio established in the attention. Here, too, structural conditions press-releases/sanders-lee- and-tlaib-partner-to-combat- Tax Excessive CEO Pay Act, introduced at the are key, including the concentration of higher outrageous-ceo-pay federal level in the United States in November value-added economic activities in specific 117 See Québec solidaire. 2019. Under this proposal, large corporations jurisdictions and significant variations in “Lier la rémunération des patrons à celle with ratios between 50 and 100 to 1 would bargaining power among actors within a de leurs employés, un incur an additional tax of 0.5 percent. The value chain. As discussed in Chapter 8, choix responsable”. Accessed 30 even among corporations that adhere to November 2019. principles of sustainability and corporate https://appuyez. Table 5.2. Variations in tax rate by pay ratio responsibility, aggressive purchasing practices quebecsolidaire.net/ salaire-maximum band (California Senate Bill 1398) may seriously constrain not only income but 118 This issue has recently Pay Ratio Tax Rate also what suppliers can do vis-à-vis social and gained attention in a 0 to 50 8.84% environmental upgrading. Also important is context where several large food corporations 50 to 100 10% the extent to which corporations engage in are withdrawing from 100 to 200 11% meaningful forms of fair trade that boost the the international Fairtrade certification 200 to 300 12% incomes of raw material producers and their scheme. See 118 Over 300 13% communities. Subramanian 2019.
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The contemporary enrichment of the business of corporations—adidas, PUMA, Unilever, and financial elite is not a function simply of H&M, IKEA, AstroZeneca, Vodafone and their skill set and contribution to economic Standard Chartered Bank, for example—are growth, but also of rent-seeking (Reich 2007, now referencing fair remuneration or the living Stiglitz 2016, 2018, UNCTAD 2017). In other wage in their pay strategies.120 words, it is associated with the power and influence they have due to their position and From the perspective of the 2030 Agenda, fair ability to influence shareholders, politicians, remuneration in terms of wage levels is a key public policy and the media. Oxfam’s work on element as it would simultaneously contribute inequality highlights the role of cronyism and to multiple goals, not least SDG 1 (poverty monopoly power as two key determinants of reduction), 5 (gender equality), 8 (decent work), perverse inequality, along with inheritance and and 10 (reduced inequalities), as well as improved tax-dodging via tax havens and other means access to food (2), health and well-being (3), (Oxfam 2018). Rising vertical inequality is also education (4), clean water (6) and energy (7). a function of changes in power relations that involve the strengthening of the managerial class The concept of fairness in relation to vis-à-vis both shareholders and trade unions. remuneration should involve both the question These issues are addressed in subsequent of allocation—that is, fair patterns of distribution chapters dealing with corporate taxation, within the corporate structure—and establishing labour rights and corporate political influence. a sustainability threshold, in other words a level of wages conducive to human well-being.
Living wages Corporate sustainability reporting frameworks and practices often adopt a minimalist A common response to the issue of vertical interpretation that judges fairness in terms of inequality within corporate sustainability compliance with minimum wage regulations accounting is to bypass what is happening or industry norms (see Annex 8). Even an at the top of the corporate pyramid, and indicator as basic as real wages, that is, nominal focus instead on efforts to improve working wages adjusted for inflation, is often ignored. conditions related to occupational health This is of particular concern given that real wage and safety (OHS), pay violations, workplace trends have declined or remained flat in many discrimination, overtime, and compliance countries, notably in the G20 (ILO 2018a). 119 Previously, in 2011, with minimum wage regulations as well as “the FLA enhanced the compensation element norms or regulations related to equal pay for Indicators for transformative change need to in its Workplace Code equal work. More recently, the principle of fair go well beyond these minimalist yardsticks by of Conduct, affirming remuneration and the concept of the living considering progress towards the payment of a workers’ right to wages that meet the wage have gained currency within corporate living wage. worker’s basic needs sustainability discourse. and provide some discretionary income”. What is the “living wage”? This work plan charts In 2015, the Fair Labor Association (FLA), The concept of the living wage refers to wage the path forward for implementing for example, enhanced its work on the com levels that allow a full-time worker, working that element of the pensation element of building socially re normal hours, to provide for their family code, providing fair compensation for sponsible supply chains by implementing the via a wage that covers basic food, housing, workers, one of the FLA Fair Compensation Work Plan.119 Similarly, transportation, health, education and some biggest challenges the 2016 revision of the King standards for other costs, as well as a small proportion in building socially responsible supply corporate governance in South Africa introduced for discretionary expenditure and savings. chains. See: http:// the principle that “[t]he governing body should Calculations of living wages are site-specific, www.fairlabor.org/blog/ entry/fla-board-directors- ensure that the organization remunerates fairly, that is, they refer to geographical areas (such as approves-implementing- responsibly and transparently so as to promote countries, provinces, urban/rural areas) where fair-compensation-work- plan the achievement of strategic objectives and costs of living are fairly similar. Furthermore,
120 positive outcomes in the short, medium and they must be periodically adjusted to factor in See Vaughan- Whitehead 2019:18. long term” (Principle 14, King IV). A number price changes.
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How the term is interpreted and applied can vary • Level 1 – Marginal survival wage: Wage considerably. Sometimes, it is used loosely by level does not provide for adequate organizations to embellish performance related nutritional needs. Starvation is to compliance with minimum wages. In other prevented but malnutrition, illnesses instances, organizations may adopt a principle and early deaths are the result. associated with the living wage but, in practice, • Level 2 – Basic survival wage: Wage focus on minimum wage norms that consider level allows for meeting immediate some level of living costs related to basic needs. survival needs including basic food, used clothing, minimal shelter and fuel Indeed, this has occurred in the case of the for cooking. International Labour Organization (ILO). Over • Level 3 – Short-range planning its 100 year history, the ILO has referenced wage: Wage level meets basic survival the notion of a living wage, or the need for needs. Possibility of small amount minimum wages to cover basic needs, at pivotal of discretionary income allows for moments.121 Part XIII of the Treaty of Versailles, minimal planning beyond living from which established the ILO in 1919, refers to paycheck to paycheck. Allows for the need to urgently improve poor labour occasional purchase of needed item(s) conditions via “the provision of an adequate as small amounts can be set aside after living wage”. The 1970 ILO Convention 131 meeting basic survival needs. and Recommendation 135 on Minimum Wage • Level 4 – Sustainable living wage: Fixing call on governments to consider “‘the Wage level meets basic needs including needs of workers and their families as a criterion food, clothing, housing, energy, to determine the level of minimum wages, transportation, health care and taking into account the general level of wages education. Ability to participate in in the country, the cost of living, social security culturally-required activities (including benefits and the relative living standard of other births and related celebrations, social groups” (Reynaud 2017: 24). Focusing weddings, funerals and related on fixing or defending minimum wages is not activities). Also allows for the setting the same, however, as actively promoting the aside of small amounts of money concept of the living wage (Reynaud 2017, (savings) to allow planning for the AFWA 2017a). future purchase of items and the meeting of needs. In addition to In some contexts, a hybrid term has emerged, as meeting basic needs and allowing the in the case of the United Kingdom. In 2016 the worker to set aside money for future government introduced “the minimum living purchases, allows for the availability wage” which simply added 50 pence onto the of enough discretionary income minimum wage for anyone over 25 years of age. to allow the worker to support the development of small businesses in The task of defining norms associated with a local community, including the 121 These include the 1919 Treaty of more expansive definitions has fallen to others, support of cultural and civic needs of Versailles which notably standard-setting and certification the community. Wage levels allow for established the organization, the bodies, advocacy NGOs and academics. long-range planning and participation 1944 International (CREA 2019). Labour Conference A second issue concerns what basic needs in Philadelphia, which reviewed and household expenditure elements the From the perspective of sustainable the organization’s living wage should cover. While it is generally development and transformative change—or mandate in the wake of the Second World understood that the living wage should cover thriving—definitions and long-term targets War; the context of basic needs, what constitutes basic needs can should, presumably, be associated with level 4. decolonization in the 1960s; and in 2008 be viewed quite differently. This is illustrated In regulatory and advocacy circles, however, the when the Declaration in the following typology of wages proposed by dust seems to be settling on a definition that is on Social Justice for a Fair Globalization was the social, economic, research and education somewhere between levels 3 and 4. adopted (Reynaud organization CREA. 2017, AFWA 2017a).
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Drawing on over 60 living wage descriptions and In contrast, typical methodologies definitions, the Global Living Wage Coalition rely on available expenditure data to (GLWC), for example, defines a living wage as: estimate housing costs and so replicate remuneration received for a standard current (often substandard) housing work week by a worker in a particular conditions. Our methodology also place sufficient to afford a decent better allows for different living wage standard of living for the worker estimates for rural and urban areas, and her or his family. Elements of a as housing costs are usually the most decent standard of living include food, important cause of differences in living water, housing, education, health costs. Our methodology also increases care, transport, clothing, and other transparency, because the size of the “all essential needs including provision for other essential costs” bucket is much unexpected events.122 smaller and examined more thoroughly (and adjusted when necessary) than in Measurement issues typical approaches.124 While a consensus may be emerging around the definition of a living wage, methods for The Asia Floor Wage Alliance (2017b) adopts calculating the living wage vary. Significant the following assumptions: issues concern, for example, what constitutes • A worker needs to be able to an adequate diet in terms of calories per adult support themselves and two other per day, the relative weight of housing costs, “consumption units” (1 consumption the composition of discretionary spending unit = 1 adult or 2 children). and savings, how many income earners and • An adult requires 3,000 calories a day dependents make up a family or household, to be able to carry out their work. what constitutes wages, and how many hours • Food makes up half of a worker’s of work are required to earn a living wage. monthly outlays; housing, health, Furthermore, national figures may mask education, transport and fuel make significant variations within countries. These up 40 percent; 10 percent is for difficulties suggest a role for an international discretionary income associated with organization like the ILO, which has long entertainment, savings, pension and acknowledged the principle of the living wage, redundancy of the main earner. to facilitate work towards a more standardized • The Asia Floor Wage is calculated methodology that can be applied globally. in purchasing power parity (USD), or PPP$, which allows the standard Basing their work on what is known as the of living between countries to be Anker Methodology123, GLWC (undated) notes compared regardless of the national some of the differences in methods, stating that currency. theirs: is a practical compromise between For its calculations relevant to garment workers 122 See https://www. globallivingwage.org/ separately estimating the cost of each in other regions, the Asia Floor Wage Alliance about/what-is-a-living- and every expense families have, and the adapts these assumptions to local context: wage/. Accessed 28 November 2019. most common approach currently used The Asia Floor Wage calculation cannot
123 for estimating living wage in developing be simply applied to other regions as See Anker, Richard and Martha Anker, 2017. countries, which uses just two expense some of the assumptions do not apply, Living Wages Around groups (food costs based on a model diet for example, food costs accounting for the World: Manual for Measurement. and nonfood costs based on secondary half of income. This is the case in Asia Cheltenham UK: data). Using normative standards for where food costs are relatively high and Edward Elgar. decent housing and estimating housing standards of living such as housing 124 See https://www. globallivingwage. costs separately (not as part of nonfood are very low, however in other regions org/about/anker- costs, as in typical methodologies) such as Eastern Europe food costs are methodology/. Accessed 28 ensures that living wage estimates enable relatively lower when compared to November 2019. workers to afford decent housing. housing (AFWA 2017b).
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Work has been carried out by the GLWC125 to meet basic needs. As noted in a study of inform auditors and certification organizations compensation by the Fair Labor Association associated with six of the standards systems (FLA) in Viet Nam: that operate under the ISEAL Alliance, a The FLA’s data show that although global membership association for credible the average worker in FLA affiliate sustainability standards.126 GLWC guidance on factories in Vietnam earns more than what constitutes wages is outlined in Annex 9. double the minimum wage, a worker would need a pay increase of almost Comparing actual wages 25 percent to adequately provide for with the living wage themselves and their family according Several organizations and studies are now to the Global Living Wage Coalition generating useful data to measure not only benchmark. Those workers who earn what the living wage is in specific countries an adequate wage can do so only or geographical areas, but also how actual through long hours and excessive days wages compare with the living wage. This of work without rest, in clear violation evidence is exposing the acute inadequacy of of international standards. While all the conventional focus on minimum wage of the regional legal minimum wages compliance as a yardstick to measure worker in Vietnam fall well above the World well-being. It also reveals that in many countries Bank Poverty line, none meet even the and supply chains, it is only through excessive lowest living wage benchmark (FLA 125 The Global Living Wage Coalition was overtime that workers can earn enough to 2019:11). founded by several standard setters to design, promote and implement a living Figure 5.1. Minimum, living and actual wages per month, USD equivalent* (Selected countries, 2020) wage for workers within the sphere of labour standards. 4,029 1 Minimum wage 4,000 The organizations 2 Living wage: Individual agreed on a common 3 Living wage: Standard family ** definition of a living 4 Living wage: Typical family ** wage, use the 5 Wage: Low-skilled worker same methodology 6 Wage: Medium-skilled worker for estimating a 7 Wage: High-skilled worker living wage, and have committed to * The Wage Indicator Foundation presents both a low and high 3,000 working towards the estimate for living and actual wages. The data reported here long-term goal of improving wages and correspond to the low estimate. 2,678 to involving brands, ** The “standard” family and “typical” family vary in number of buyers, retailers children and hours of paid employment. For definitions, see link in and other relevant figure source. stakeholders in this 2,065 process. See: https:// 1,963 2,000 www.globallivingwage.org/ 1,871 1,893 about/, accessed 30 November 2019. 126 The six entities are Fairtrade International, Forest Stewardship 1,189 Council, GoodWeave International, Social 1,000 1,000 Accountability International, Sustainable Agriculture 504 Network, and UTZ 452 384 Certified. Some 295 248 19 sustainability 168 188 standards and accreditation bodies Mexico 1 2 3 4 5 6 7 Germany 1 2 3 4 5 6 7 are full members of ISEAL. See: https:// www.isealalliance. org/about-iseal/iseal- Source: Based on data from the WageIndicator Foundation. Wages in Context. https://wageindicator.org/salary/wages-in-context. members, accessed 30 Accessed 10 August 2020. November 2019.
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neither they nor medium-skilled workers earn Table 5.3. Minimum wage versus living wage anywhere near the living wage for a family. This Minimum Living Difference*** contrasts with the situation in Germany where Country wage* wage** (%) the minimum wage approximates the living (euros) (euros) wage for a standard family and even low-skilled Bangladesh 49.56 259.80 19 workers earn above the living wage. Cambodia 72.64 285.83 25 China 174.60 376.07 46 India 51.70 195.30 26 Concerned by low wages in the garment Indonesia 82.14 266.85 31 industry in Asia, the Asia Floor Wage Alliance Malaysia 196.06 361.21 54 (AFWA) was formed to promote the living wage Sri Lanka 50.31 259.46 19 concept in this region. The AFWA measures * The method for calculating the minimum wage may vary by country. how salaries based on the minimum wage ** The living wage is based on the Asia Floor Wage 2013 figure of PPP $725. compare with the living wage. Data for 2013, *** Minimum wage as a percentage of the living wage. presented in Table 5.3, suggest that the gap is Source: Merk 2014. http://asia.floorwage.org/wp-content/ significant, with the minimum wage standing uploads/2019/10/LW-in-Asia-AFWA-CCC.pdf, accessed 20 April 2020 at approximately 50 percent of the living wage in the case of Malaysia and China, and just 19 The Wage Indicator Foundation calculated percent in Bangladesh and Sri Lanka. the living wage for 76 countries in 2019.127 Furthermore, the data compare the living wage The use of different methods to calculate the to the minimum wage and to the prevailing living wage has led to concerns that different wage of different types of worker categorized by organizations—say, governments or NGOs or skill levels (low, medium and high). Data reveal trade unions—tend to adopt methods that significant variations in wage relationships. suit their particular preferences in terms of low or high valuations (Vaughan-Whitehead Regarding high income countries: 2019). However, it can be argued that high • with a few exceptions the minimum valuations are not realistic from a business wage approximates the living wage of a perspective, given the economic constraints “typical family”;128 experienced by firms. In the case of the Fair • wages of the low-skilled often exceed Wage Network, this concern has led to a the living wage;129 focus on the requirement that management • in a few countries, the wage of low- systems be in place—such as a fair wage policy, skilled workers is below the living wage needs assessment, social dialogue—in order of the “typical family”. to gain certification (Vaughan-Whitehead 2019). In relation to developing and transition economies: While such an approach is important for • in many countries the living wage engaging companies in a fair wage strategy, 127 For specific country data see: https:// exceeds not only the wage of low- it should not be seen as an alternative to a wageindicator.org/salary/ skilled workers but also that of performance-based assessment process guided living-wage, accessed 10 December 2019. medium-skilled workers; by ambitious targets. In keeping with the
128 • In contrast to the in just a few countries, the wage of low- focus of this report, such targets are key for “standard” family of skilled workers exceeds the living wage; corporate sustainability accounting, as they two adults and two children, the number of • at the extreme, there are instances suggest thresholds that need to be met from children in the “typical” of countries where even the wages the perspective of sustainable development. family is calculated of high-skilled workers are below the It may well be that a company cannot bridge on the basis on the national fertility rate living wage. significantly, in the short or medium or even (Guzi and Kahanec long term, the gap between actual wages and the 2014). Figure 5.1 shows data on the minimum wage, living wage. From an accounting perspective, 129 The Nordic countries have no minimum the living wage and the actual wage of different however, we at least know where that company wage but tend to rely skill categories of worker in Mexico and is positioned in relation to this dimension of instead on sectoral collective bargaining to Germany. In the case of Mexico, low-skilled sustainable development and whether or not provide benchmarks. workers earn just above the minimum wage but any progress is significant.
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⚫ Concluding remarks
The above discussion regarding fair remuner could also adapt the WageIndicator method, ation suggests the following take-aways. which compares the living wage with the wages of different categories of worker, by referring In a context where trends in income and to the median wage of each quartile of wage/ wealth inequality are undermining the salary earner. attainment of several SDGs, it is crucial to assess what corporations are doing both to Other key performance indicators related measure their impacts in this area, and to to fair remuneration should include real, as adhere to sustainability principles and norms opposed to nominal, wage trends and the by correcting skewed patterns of distribution. comparison of wage trends with those of As regards intra-firm inequality, the CEO- labour productivity. employee pay ratio is a convenient indicator.
While standard-setting organizations are paying more attention to such disclosure, there are considerable variations in methodologies and metrics used. Such inconsistencies need to be addressed to ensure, for example, that the median or the mean average wage reflects the prevailing wages of typical workers and that CEO salaries factor in the multiple sources of income that make up the CEO salary package.
As regards possible long-term targets for assessing progress, several of the initiatives and experiences reviewed in this chapter suggest a threshold of about 50 to 1 as an acceptable CEO-worker pay ratio within large corporations. From other vantage points, however, this remains excessive. From the more ambitious perspective of distributive justice associated with sustainable development and Achieving progress related to fair remuneration transformative change, a ratio in the range of and living wages often requires a sectoral 10-30 to 1 might be considered fair. or regional approach to prevent responsive companies from losing competitive advantage. The living wage is another convenient reference It also requires far greater attention to labour point for gauging a company’s contribution rights and enhancing the capacity of workers to sustainable development in relation to bargain for improved pay and conditions, to fair remuneration. While it has a long the issue discussed in Chapter 8 below. pedigree in terms of conceptualization, it has remained under the radar within both labour From an accounting perspective, where market policy and corporate sustainability consistency and comparability are important accounting. Recently, however, it has gained principles, variations in methodology suggest traction within these fields. Companies the need for different organizations and should provide metrics that allow stakeholders stakeholders to come together to harmonize to compare actual wage levels with not only methods. Given its long association with the the minimum wage or industry norm but also principle of a living wage, its global regulatory the living wage. It would be of interest to know and normative stature, and its convening the percentage of employees in a company power, the International Labour Organization who earn below the living wage. Companies seems well placed to play a facilitation role.
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CHAPTER 6 Gender Equality
The United Nations initiative to launch the
130 See, in particular, Women’s Empowerment Principles in 2010 Principle Three: Provide highlighted growing awareness of gender decent work for young equality as a material issue within the field of workers, parents and caregivers. UNICEF et corporate sustainability accounting. And the al. 2012; 2013. Children’s Rights and Business Principles, 131 See: Gender adopted in 2012, reinforced the need for Dimensions of the Guiding Principles on companies to extend responsibility beyond Business and Human Introduction conventional issues (such as child labour, Rights: Report of the Working Group on the child-sensitive advertising, product safety and issue of human rights As is evident in the Sustainable Development community support) to others such as caregiving and transnational Goals (SDGs), the issue of inequality relates not and payment of living wages.130 Gender equality corporations and other business enterprises. only to so-called vertical inequality associated in the workplace, and more generally, has since Human Rights Council. with the distribution of income, wealth and gained greater global attention due to the SDGs 2019. Accessed 10 June 2020. https://www. other economic resources among individuals and specific SDG targets (see Box 6.1), as well business-humanrights. but also to horizontal inequality between social as new guidance published in 2019 on Gender org/sites/default/ files/documents/A_ groups, differentiated, for example, by race, Dimensions of the Guiding Principles on HRC_41_43.pdf ethnicity and gender. Business and Human Rights.131
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The recognition of gender diversity, inclusion Box 6.1. Gender-specific SDG targets and goals and pay equity as important dimensions of corporate sustainability performance is Sustainable Development Goals 1, 5 and 8—on due not only to rights-based expectations poverty reduction, gender equality, and decent and pressures but also to economic analysis work respectively—contain various targets that confirming that gender equality within cor have direct implications for corporate sustainability performance and accounting. Particularly relevant porate structures is good for the bottom line, are the following targets:* competitive advantage and GDP growth.132 • 1.4: By 2030, ensure that all men This issue area, then, is not so much a and women, in particular the poor blind spot within corporate sustainability and the vulnerable, have equal rights disclosure and reporting as it is one where to economic resources, as well as access to basic services, ownership meaningful quantitative performance metrics and control over land and other forms are substantially lacking, as are context-based of property, inheritance, natural targets to measure progress through time. resources, appropriate new technology and financial services, including microfinance. From the perspective of gender justice and • 5.2: Eliminate all violence against and transformative change, it is important to exploitation of women and girls in the rethink priorities and metrics within cor public and private spheres, including porate sustainability accounting related to trafficking and sexual and other types of exploitation. gender equality in the workplace. This chapter • 5.4: Recognize and value unpaid focuses on three specific key performance care work … and [promote] shared issues and related indicators: (i) the gender responsibility within the household and pay gap; (ii) gender balance within corporate the family… structures; and (iii) corporate support for • 5.5: Ensure women’s full and effective participation and equal opportunities caregiving. for leadership at all levels of decision- making … including women in While corporate sustainability reporting managerial positions (indicator 5.5.2). may address these issues, the indicators • 8.5: By 2030, achieve full and productive employment and decent used often do not allow management and work for all women and men, including other stakeholders to effectively gauge for young people and persons with performance related to gender equality in disabilities, and equal pay for work of any comprehensive sense. The measurement equal value, measured by comparing “[a]verage hourly earnings of female of the gender pay gap is clouded by meth and male employees, by occupation, odological issues, underreporting, or the age and persons with disabilities” tendency to provide one company-wide figure (indicator 8.5.1). rather than a breakdown by occupational • 8.7: Take immediate and effective measures to eradicate forced labour, or income categories. In the case of gender end modern slavery and human balance, attention focuses heavily on women’s trafficking and secure the prohibition representation at the highest executive levels, and elimination of the worst forms of or on company boards, rather than diversity child labour... • 8.8: Protect labour rights and within different occupational and hierarchical promote safe and secure working categories. In the case of care, attention often environments for all workers, including focuses narrowly on one aspect—maternity migrant workers, in particular, women or paternity leave associated with pre- and migrants, and those in precarious employment. post-natal care or adoption—rather than 132 See, for example, Desjardins 2018; Hunt care as a multifaceted and ongoing lifecycle et al. 2015; Lagarde issue. Furthermore, sustainability accounting * See the 2030 Agenda for Sustainable and Ostry 2018; Lee et related to these issue areas often remains Development goals, targets and indicators at al. 2015; RobecoSAM https://sustainabledevelopment.un.org/?menu=1300 2015; and Woetzel et divorced from setting time-bound targets. al. 2015.
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Structural dimensions of gender reasons experience an even greater pay gap. disadvantage in the workplace Moreover, the wage penalty associated with what can be dubbed the motherhood gap tends to widen as the number of children a woman When structural barriers for has increases (Grimshaw and Rubery 2015). women in the world of work are More indirectly, cultural norms intervene to addressed in a systematic and constrict female participation in education comprehensive way, through a related to science, technology, engineering and combination of sound policies, mathematics which are considered pathways to legislation and practices, higher paid jobs (OECD 2017). gender gaps can be reduced. Investing in transformative The upshot of these conditions is reflected in policies is essential to the following stark facts presented by the ILO achieving gender equality. … and UN Women: “ Redistributing unpaid care • Women remain less likely to work by promoting a more participate in the labour market than equal division between women men around the world. The labour and men, and between families force participation rate for women and society must be a prime aged 25-54 is 63 percent compared to objective. Only when care is 94 percent for men; and it is just 48.5 put at the centre of social and percent if younger women (age 15 and economic policies will a better above) and older women (over 55) are future of work for women—and also included (UN Women 2018). for men—be possible • Women are proportionately over- represented in low wage jobs. Globally, ILO (2019:104) there is a gender wage gap of 22 percent when calculated on the basis From a structural perspective, what is the of median monthly wages (ILO core issue underpinning gender inequality 2018a). and women’s disadvantage in the workplace? • Among high-income countries, the Essentially, the issue relates to segmented labour widening of the gender pay gap is markets, cultural bias and the gender division particularly evident at the upper end of labour associated with caregiving. Women’s of the wage distribution, while in low- paid work is often concentrated in low-paid, low- and middle-income countries this is quality jobs. Furthermore, advancement within more apparent at the low end of the the workplace and career structures remains distribution (ILO 2018a). heavily constrained by cultural norms and bias • Across the world, the proportion of that disadvantage women. These constraints women declines, sometimes sharply, reinforce the so-called double burden: increased as they transition from lower to higher involvement of women in paid work occurs in a hourly wages (ILO 2018a). context where they continue to assume primary • Women’s ongoing disadvantage in all responsibility for unpaid family care provision. occupational categories is pronounced even though girls and women have A key aspect of distributive (in)justice, namely made significant gains in educational the gender pay gap, relates to these elements. achievement relative to boys and men. For example, we see evidence of this gap in the In many countries, women are more tendency to offer women job applicants lower highly educated than men in the same starting salaries either because of the low-wage occupational categories but earn lower expectations that both women applicants and wages (ILO 2018a). employers may have, and/or due to women’s • Women’s work is undervalued in relatively weak bargaining position. Additionally, highly feminized occupations and women who take a career break for care-related enterprises. The wages of women and
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men with similar levels of education that embrace gender diversity are better tend to be lower in highly feminized positioned to navigate future of work jobs than in other occupations (ILO transitions and to more swiftly pursue 2018a). all the paths that lead to a better future • Women bear disproportionate for women at work. It is not a matter of responsibility for unpaid care and “fixing” women but rather ensuring that domestic work. Women tend to the environment is receptive to women’s spend around 2.5 times more time on voice and that barriers are removed to unpaid care and domestic work than allow women to participate in enterprise, men. The amount of time devoted national and international social dialogue to unpaid care work is negatively processes (ILO 2018:18-19). correlated with female labour force participation (UN Women 2018a). The notion of collective bargaining also • Women are less likely to have extends to other forms of social organization access to social protection. Gender and mobilization. Women workers at Amazon, inequalities in employment and job for example, referred to as Momazonians, quality result in gender gaps in access have joined together in a campaign to extend to social protection acquired through care-related benefits beyond pre- and post- employment, such as pensions, natal care to back-up care for children (Soper unemployment benefits or maternity and Greenfield 2019). protection. Globally, it is estimated that nearly 40 percent of women in wage employment lack access to social The gender pay gap protection (UN Women 2018a). 133 UN Women 2018, • Women are constrained from A key dimension of income inequality within updated by author based on “Only achieving the highest leadership corporate structures relates to the “unadjusted” 33 women now positions. In 2019, only 6.6 percent of gender pay gap. This is not the same as lead Fortune 500 Fortune 500 CEOs were women.133 unequal pay for equal work, which is illegal in companies. And that›s a record 134 many countries. While measurement of the high” by Jeanne As noted in this chapter’s opening quotation, latter requires comparing the remuneration Sahadi. Accessed 20 December 2020. public policy and government regulation of employees doing the same work, or work https://edition.cnn. need to play a central role in addressing these requiring essentially the same skills, the com/2019/05/16/ success/women-ceos- issues. There is, however, ample room for former is the average remuneration of females fortune-500/index.html both corporations and CSR or ESG standard- as a percentage of that of males, measured 134 Some 86 countries setters to measure and enhance sustainability in terms of monthly or hourly earnings. have laws mandating performance in this area. The difference between the two measures is equal remuneration for work of equal value generally significant. Measuring the median (ILO 2019:46). Meaningful progress related to gender diversity, salary of men and women with the same job 135 As the ILO points out, pay gaps, and care—when combined with and qualifications, the data and compensation when measuring the gender wage gap at progress in other issue areas examined in Part 2— software company PayScale finds that women the country level, in could do much to advance the cause of gender in the United States earn USD 0.98 for every “almost all countries the gender pay gap equality and achieve several of the SDG targets. dollar earned by men with the same job. This is higher when the Directly relevant in this regard is the question compares with USD 0.81 for the unadjusted estimate is based on of the living wage, addressed in the previous gender pay gap (PayScale 2020).135 monthly wages rather than hourly wages, chapter. It is important that calculations of the reflecting the fact living wage include some provision for the cost The unadjusted gender pay gap provides a that in most countries women and men of caregiving. Also key is collective bargaining, broader measurement of gender disadvantage differ significantly in addressed in Chapter 8, and the representation that can arise from sectoral or occupational respect of working time—specifically, of women and women’s interests within trade gender segregation (also known as polarization), that part-time work is unions. As noted by the ILO: and of gender disadvantage that arises when more prevalent among women than among Collective representation and social the level of women’s remuneration and men” (ILO 2018, citing dialogue, including collective bargaining, possibilities for full-time work and promotion Fagan et al. 2014).
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are suppressed by educational disadvantage, Mean and median calculations can provide care responsibilities, and cultural norms quite different readings for the same company. and bias that restrict women’s remuneration In terms of hourly earnings, Unilever (UK) relative to that of men.136 reports a mean gender pay gap of 8.8 percent in favour of men and a median favouring women For this reason, the pay gap figure should of 2.5 percent. In terms of bonus pay, the be unadjusted; in other words, it should not median for women is 50.4 percent higher than consider differences in, for instance, hours that of men, while the mean for men is 37.2 worked, experience and education. The percent higher than that of women.139 unadjusted or raw figure, then, captures the fact that women’s lower pay may be a function Furthermore, while figures are often based of women’s employment being concentrated on the remuneration of full-time employees, in relatively low-paid jobs or sectors, taking factoring in part-time employees provides a 136 See: ILO 2018; Leythienne time off or working part-time given maternity broader perspective on gender inequality. and Ronkowski 2018; OECD and other care responsibilities, or because men For instance, in the UK the gender pay gap 2017; Eurofound 2010. are favoured in promotions and bonus pay. doubles from 9.1 percent when based on full- 137 The Independent. 2019. ‘Gender pay gap: What is it As a Eurostat study notes: “The unadjusted time employees to 18.4 percent when part-time and how is it different from GPG [gender pay gap] is therefore a rather employees are included.140 equal pay?’ by Olivia Petter. 5 April 2019 12:00 https:// complex indicator. Its measurement covers www.independent.co.uk/ both possible discrimination between men In the United States, an ADP Research Institute life-style/women/gender- and women through ‘unequal pay for equal study found that while the entry level base salary pay-gap-equal-pay-women -paid-less-motherhood work’ and the differences in the average pay gap was 82 percent between 2010 and 2016, -a8856121.html characteristics of male and female employees” “[t]he average bonus amount for women was 138 See Financial Times 2018c. (Leythienne and Ronkowski 2018:6). less than two-thirds of the amount paid to men The ILO points out that not only the choice of mean or who had equivalent base pay, age, and tenure. median averages, but also Such disclosure allows stakeholders to identify This incentive pay disparity was observed across monthly or hourly wages can significantly affect variations in company performance—say, top all age, salary, and industry groups from the calculations of the gender performers versus laggards or those making moment of hire and persisted throughout the wage gap: “Using these incremental adjustments. This data can also six-year study window” (Goldar et al. 2019:3). four different combinations (mean/median and hourly/ provide a useful management tool, pointing, monthly), the report finds for example, to the need for more flexible According to RobecoSAM (2015:13), in that the weighted global estimates range from working arrangements if part-time work is 19 out of 24 industry groups the pay gap at about 16 percent to 22 a significant gap factor, or to actions that management level was greater when taking percent, depending on which measure is used. encourage the promotion of women if the bonuses into account: “While a gap in base pay The gender pay gap of 22 gap is particularly wide in senior management appears to be structural and may be influenced percent is obtained when 137 using median monthly levels. by other factors such as the distribution of men wages” (ILO 2018: xv). and women in support versus profit generating 139 Unilever explains the The basic calculation—earnings of men minus roles, management incentives are more likely difference in the following earnings of women as a percentage of the to be discretionary so a widening pay gap here terms: “Mean figures represent the average earnings of men—may be based on mean or raises the possibility that women in management across our whole workforce, median average hourly or monthly earnings. roles are being consistently underrewarded”. so are particularly impacted by the highest earners in The median average, however, is sometimes the UK business – generally considered more appropriate as it prevents For the above reasons, it is important to measure senior management roles, more of which are held outliers from distorting the average and better the gender pay gap for the company as a whole by men. Median figures reflects the experience of most employees.138 But and by different occupational and hierarchical represent the midpoint of as Unilever (UK) explains in its gender pay gap categories. Such data, from the ADP Research our workforce and so are higher for women, reflecting report, the mean can also reflect the fact that Institute, are presented in Table 6.1. the fact that more of our one gender, generally men, occupies the bulk of manufacturing roles are held by men, with more the highest paying top management positions Data disaggregated by multiple hierarchical women in the higher paid (Unilever 2019b). It is important, therefore, for or occupational categories can reveal where managerial roles in this area of the business” (Unilever gender pay gap calculations to include not only bottlenecks occur. It is important not to mask 2019b:4). base salary but also compensation associated the scale of disadvantage in one category by 140 Cited in The Telegraph 2018. with incentives and bonuses. conflating categories where variations may be
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Table 6.1. Gender mix and pay disparity among hierarchy levels
Managerial level % of employees Hourly wage (US$) Gender pay gap (%) Female Male Female Male 6th level 15 85 164 212 77 5th level 19 81 121 156 77 4th level 23 77 98 120 82 3th level 35 65 61 85 72 2nd level 37 63 46 55 83 1st level 43 57 36 45 81 Managers w/o directs 44 56 36 48 75 Non-managers 48 52 22 27 81 All 47 53 79 Source: Yildirmaz et al. 2019 significant. Regarding the gender wage gap, in diversity within the boardroom and senior 2009 Brazilian Banco Bradesco, for example, management. But a more granular approach reported a significant variation in wage gaps: 75 is needed. RobecoSAM (2015) points out that percent for administrative staff and 94 percent measurement and disclosure related to gender for “supervisors and technicians”. In more diversity need to be able to shed light on a recent integrated reports from the bank these dual transition, namely, from operational to categories have been merged, and a gap of 85 supervisory roles, and from junior to senior percent for “supervisory/administrative staff” management. To this we can add, of course, was reported in 2016.141 a third transition, namely from the “sticky floor” of the home where care responsibilities There needs to be far greater consistency in assumed by women may constrain entry, or re- methods for calculating the gender pay gap. As entry, into paid work. noted by Equileap (2018a:6): “Those companies that do report their gender pay figures use a Referring to the lack of progress in women’s number of different methods. For disclosure representation in the workplace in “corporate to have maximum impact, there needs to be a America” (USA and Canada), McKinsey’s commonly adopted standard, which includes Women in the Workplace 2018 study notes that: annual, public reporting of gender-segregated The two biggest drivers of representation pay in different employee levels, rather than are hiring and promotions, and com issuing one overall figure, which can be panies are disadvantaging women in misleading”. these areas from the beginning. Although women earn more bachelor’s degrees than men, and have for decades, they are Gender diversity less likely to be hired into entry-level jobs. At the first critical step up to manager, the As noted above, the gender pay gap is partly disparity widens further. Women are less explained by the concentration of women likely to be hired into manager-level jobs, in lower-paid occupational categories and re and they are far less likely to be promoted stricted mobility within career structures. The into them—for every 100 men promoted metaphors of the glass ceiling and the sticky to manager, 79 women are. Largely be floor capture graphically the structural problem cause of these gender gaps, men end up 141 See Relatório de Sustentabilidade 2009 of limited gender diversity and mobility along holding 62 percent of manager positions, and 2016 Relatório managerial pathways. while women hold only 38 percent (Lean Integrado, available on the GRI Sustainability In and McKinsey & Company. 2018). Disclosure Database. To date, much of the focus in corporate Accessed 20 December 2019. sustainability reporting has been on the glass While the GRI reporting standards, presented https://database. ceiling, particularly on promoting gender in Annex 8, call on companies to disclose globalreporting.org/
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Figure 6.1. Representation (%) of men and women in the corporate pipeline in relation to gender parity (United States and Canada, 2015 and 2019)
Parity Parity Parity Parity C-suite C-suite 22 78 18 4 10 68 17 83 Senior vice president Senior vice president 26 74 21 5 10 64 23 77 Vice president Vice president 31 69 24 7 12 57 27 73 Senior manager / director Senior manager / director 35 65 26 9 14 51 32 68 Manager Manager 39 62 27 12 17 45 37 63 Entry level Entry level 48 51 30 18 16 35 45 55
Women of colour Men of colour 2019 2015 Data from 2019
Women Men Source: Based on Lean In and McKinsey & Company 2018 and 2019 Women in the Workplace reports. Reproduced with permission.
gender balance for different “employee A 2019 report by the ADP Research Institute, categories”, it is left up to companies to providing data on gender balance across decide what these might be. Furthermore, eight hierarchical categories in United States the presentation of data in annual snapshots companies, notes that “[t]he fourth management makes it very difficult to assess progress. level…appears to define the “glass ceiling”—a A presentation format that allows both steep decline in female representation even management and other stakeholders to easily from the third level” (Yildirmaz et al. 2019:6). grasp whether firms reinforce glass ceilings For further information, see the ADP data and sticky floors, make minor adjustments, or presented in Table 6.1. fundamentally transform them over a period of several years is very helpful in this regard. Care For instance, the annual Women in the Workplace report referred to above provides Gender inequality in unpaid relevant indicators and a user-friendly data care work is “the missing link presentation format to capture these transitions in the analysis of gender gaps related to gender diversity in the United States in labour outcomes, such as 142 and Canada. labour force participation, wages and job quality. Moreover, this format can be adjusted to reflect other dimensions of diversity and inequality, Ferrant et al. 2014 such as race and ethnicity. Figure 6.1 also presents data from the same McKinsey study showing variations in representation of Black Caregiving has been identified as the biggest 142 The study, Women in the Workplace and White employees (male and female). This obstacle to women’s employment, equitable 2019, conducted breakdown allows management, employees, pay and the quality of women’s jobs (ILO by McKinsey (2019) in partnership with trade unions and other stakeholders not 2019). In general, women are overburdened LeanIn.Org, draws only to observe clearly how gender or ethnic with responsibilities for care that constrain on data from 323 companies, as well diversity are faring (read diminishing) as one participation in full-time paid work and as on a survey of over rises through the corporate structure, but also promotion within career structures. The 68,500 employees and a series of qualitative to pinpoint at which level lack of diversity is a concept of the care diamond points to the interviews. more salient issue. varied institutional sites—the state, family/
100 CORPORATE SUSTAINABILITY ACCOUNTING: WHAT CAN AND SHOULD CORPORATIONS BE DOING?
Figure 6.2. Earnings relative to pre-child earnings households, market/for-profits, and not-for- (Denmark and United States, 2015) profits/community organizations—where care is provided (Razavi 2007). Much feminist First child birth analysis has focused on contexts of economic 2 Denmark liberalization, where there has been a 0 Men reconfiguration of this architecture, involving -2 Women a decline in state-led material support and -4 regulation, and increased provision of market- -6 led care services. These developments often -8 give rise to significant financial and time-use -1 time event to Earnings relative Event time (years) burdens at the level of the family/household -10 -5 -1 0 5 10 that particularly impact women (UNRISD 2010b,c). 2 United States
0 As noted by the Equal Pay International Men -2 Coalition (EPIC) in the context of its work on rethinking indicators on gender equality, -4 Women “There is substantial evidence to suggest -6 that in the vast majority of countries, both -8 Earnings relative to event time -1 time event to Earnings relative participation and the pay gaps between women -10 Event time (years) and men widen at the onset of parenthood. -5 -1 0 5 10 Far from being a short-term effect, evidence Source: Based on Kleven et al. 2019. Reproduced with permission. shows that the effect of parenthood during the reproductive ages expands over the life cycle of Beyond the need to comply with laws governing women, while men do not seem to suffer the maternity or parental leave associated with same consequences” (EPIC 2019). childbirth or adoption, corporations have been let off lightly when it comes to responsibilities The so-called motherhood penalty extends and support for care. This is particularly across women’s lives within the sphere of paid apparent in the United States, which is the work, affecting opportunities for employment, only OECD country where employers are levels of pay, promotion and work-life balance. not mandated by federal law to provide paid As depicted in Figure 6.2, unlike men, women maternity or parental leave.143 According to the not only experience a sharp decline in earnings Society of Human Resource Management, only following the birth of a first child but this 2 percent of employers in the United States penalty persists through time, albeit with help employees pay for childcare fees, and significant variations by country. only 4 percent offer back-up childcare services (SHRM 2018). Analysis of a group of the 200 most productive 143 Under the Family and companies (by gross value added per worker) But as gender equality in the workplace, work- Medical Leave Act, in the United Kingdom shows that women’s life balance and the double burden gain greater companies with 50 or more employees must representation relative to men’s declines visibility, new norms and expectations about grant up to 12 weeks significantly in the late thirties to late forties age care have emerged. This has not only led to of unpaid leave per year for various care- range (Financial Times 2019b). increasing demands for public policy support and health care-related and regulation but also drawn attention to the needs. In March Conventional corporate policies and reporting need for corporations to become more engaged. 2018, only 16 percent of private industry on care-related aspects have largely ignored the workers had access to longer term lifecycle dimension of care, opting Beyond maternity and parental leave paid family leave (25 percent in the case instead to focus on an approach to care that Companies can adopt a range of measures of large corporations has an extremely short-term horizon, namely to support women or parents with children with 500 workers or more) (Bureau of Labor maternity or parental leave. More recently, and other care responsibilities, not least elder Statistics 2019). 144 flexitime and teleworking are being added to care. Some measures have no or very low cost 144 See IFC 2017; CDPHE some reporting guidelines. implications for firms, beyond administrative and EPIC 2017.
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costs. An example is providing information to Beyond complying with laws mandating paid employees about local care facilities or pre-tax maternity or paternity leave, providing extended schemes, such as the Dependent Care Assistance periods of maternity and parental leave also Plan (DCAP) in the United States and vouchers has significant cost implications for firms. In in the United Kingdom, which allow a parent- the United States, for example, where there employee to set aside part of their wages to pay is no federal law mandating paid maternity for childcare expenses and receive tax benefits. leave, several high-profile corporations are not only providing several weeks of fully paid leave A key innovation being adopted by some but also granting longer leave periods. Other companies in several sectors relates to time measures include subsidies and reimbursement management arrangements that allow to lower the cost of care services; support for parents to vary their work schedules to better back-up emergency care;147 material support for accommodate care needs or to work off-site.145 local childcare centres in return for preferential The latter usually involves teleworking from access for company employees, provision of on- home. A large survey of business leaders in site facilities, and consortium arrangements 145 The ILO points out eight countries found that first among 17 forces where two or more companies pool resources that while policies that could potentially affect the future of work to facilitate access to care services. and programmes associated with in the next five years was employee expectations flexitime and for improved work-life balance and flexible The Women in the Workplace 2018 study of 279 teleworking are welcome from work arrangements (Fuller et al. 2019). companies in North America found that those the perspective of surveyed were far more likely to support telework, gender equality, it A 2018 survey of employers in the United States flexitime and parental leave initiatives than other is important that 148 they do not reinforce found that: forms of care support (see Table 6.2). gender stereotypes flexible working benefits, such as tele and conventional caregiving roles (ILO commuting, flextime and compressed Table 6.2. Work-life balance and care 2018:17). work weeks, encourage work-life balance support in the United States and Canada, % of companies offering 146 Available at https:// and can result in higher productivity and timewise.co.uk/article/ more engaged employees. More than Telecommuting at least once a week 75% flexible-jobs-index/ (accessed 8 November two-thirds (70%) of organizations offer Ability to work part-time or on a reduced 67% 2019). some type of telecommuting, either on schedule 147 While estimates of a full-time, a part-time and/or an ad-hoc Maternity leave beyond legal requirements 62% the number of United Paternity leave beyond legal requirements 55% States employers basis, up from 62% last year and 59% in offering back-up care 2014; telecommuting on an ad-hoc basis Emergency back-up childcare services 31% support are in the 4 Programmes to smooth transition to and rose by 14 percentage points since 2014 29% percent to 5 percent from extended leave range (9 percent (68% in 2018 vs. 54% in 2014) with Subsidies for regular childcare 16% to 16 percent for much of that increase occurring since large employers or On-site childcare 13% companies), two of the 2017 when 59% of organizations offered Source: Lean In and McKinsey & Company 2018. Accessed largest operators of this benefit. Telecommuting on a part- employer-sponsored 20 December 2019. https://wiw-report.s3.amazonaws. childcare centres in time basis also rose considerably over the com/Women_in_the_Workplace_2018.pdf the country report a last five years, with 37% of organizations significant increase in companies offering offering this benefit in 2018 compared Recently, some large companies have begun to back-up care benefits with 29% in 2014 (SHRM 2018:13). broaden their approach to care, the following over the last five years (L.A. Times 2019; see examples show. also Families and Work Data for the United Kingdom suggest limited Institute 2017 and progress. According to the Timewise Flexible • Since 2017, L’Oréal has ratcheted up SHRM 2018). Jobs Index 2019,146 the percentage of job its care policy and programmes by 148 See Lean In and McKinsey & Company advertisements offering flexible working extending both fully paid maternity 2018. The study draws options (including part-time work) increased and paternity leave, subsidizing on data from 279 companies employing slowly from 9.5 percent in 2015 to 15.3 percent care for mothers returning to work, more than 13 million in 2019. With an estimated 87 percent of promoting flexitime and teleworking, people, as well as on employees wanting to work flexibly, this is well- and providing on-site crèche facilities a survey of 64,000 employees. short of the high demand. in some countries (see Box 6.2).
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• In 2017, Italian oil and gas Box 6.2. Ratcheting up care at L’Oréal multinational Eni launched a pilot Smart Working project on new The French cosmetics corporation L’Oréal has gradually extended its care cover. In 2013, it parenthood which allows both female launched the L’Oréal Share and Care programme, and male parents to work outside which mandated all of the group’s subsidiaries their usual company site of work for to provide a set of benefits related to welfare two days per week. (financial support in the event of an unexpected life accident); health care (access to full medical cover • In 2015, Microsoft extended fully or health check-ups), maternity leave (fully paid paid parental leave for United States for a minimum of 14 weeks) and quality of life at employees to 20 weeks (eight weeks work. Implementation of a second phase, initiated in 2017 and due to last until 2020, expanded the of maternity leave plus 12 weeks of benefits to include a minimum of 10 days fully parental leave). In 2019, the company paid paternity leave and development of flexitime, extended its subsidized back-up “smart work” and teleworking. In Central America and Argentina, the L’Oréal Mama scheme provides childcare and elder care support for additional benefits associated with care. Beyond United States employees from 100 to complying with mandatory maternity leave of 105 150 hours.149 days, the company now provides 15 additional • In 2019, Target announced it would days at full pay, allows shorter working hours each week for returning mothers compensated at the full expand the package of measures for rate, and provides a monthly contribution toward its 350,000 employees to include up the cost of childcare in a nursery or kindergarten to four weeks of paid time off to care for children up to three years of age. In Argentina, this amounted to between 1,300 and 2,300 pesos for newborns or sick family members, per month (approximately USD 75 to 135) when and 20 days of in-centre childcare or the scheme was introduced, at a time when the in-home back-up childcare or elder monthly minimum wage was 8,060 pesos (or about USD 474). In several other developing countries, care. These measures apply to both such as India, L’Oréal has also established on- 150 full-time and part-time employees. site childcare facilities. Additional measures are planned for 2020. According to a study by Sekerler Anecdotal evidence, however, does not confirm a and Gem published by the ILO, “L’Oréal subsidiaries in different countries had witnessed improvements trend. In national or subnational contexts where in various social protection benefits, for example corporate care policy is not being propelled by maternity leave went up to 14 weeks in 42 government regulation, corporate action in this percent of the countries where L’Oréal is present”. As a result of the study, “L’Oréal is planning to area may be confined to a fairly narrow set of firms implement new indicators including the number of and sectors. In the United States, for example, employees and firms affected by various features it is often the large tech, retail and professional of the program”. services corporations that have taken the lead, responding partly to the changing cultural Source: L’Oréal 2018, 2019; ILO 2017c; Sekerler and Gem (millennial) composition of the workforce and/ 2019:34, 23. or the tightening of labour markets.
But progress, more generally, has been limited— gradually after childbirth or adoption as indicated by the US 2016 National Study of and to have special consideration after Employers: a career break for personal/family Overall, when we look at the workplace responsibilities, we find that the average flexibility and employee policy landscape maximum number of weeks of parental for the nation today, we see trends and caregiving leaves did not change that do not support the recent high significantly between 2012 and 2016. The profile announcements of expanded highest estimates for all four types of leave paid parental leave benefits by Netflix, were back in 2005 when the economy was Amazon, Microsoft, Johnson & Johnson, still strong! (Matos et al. 2017:5). 149 See Microsoft entry at Ernst & Young and a few others. Though https://fairygodboss. com/company-benefits/ there has been a small increase in the This study indicates that a limited level of microsoft
proportion of employers allowing (at support has been provided by employers for (i) 150 See Quartz at Work least some) employees to return to work worksite related childcare (7 percent of sample; 2019.
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20 percent of large employers); (ii) vouchers states); and flexible working arrangements not or subsidies (2 percent of sample; 8 percent of only for parents but other “working carers” large employers); and (iii) back-up or emergency (European Council 2019). care (5 percent of sample; 9 percent of large employers). Only in the case of back-up care had Pressures for regulatory action related to employer support increased since 2012 (from 3 care are not confined to wealthier countries. to 5 percent). The study also found evidence Several developing countries have passed of limited organizational support for flexible laws extending paid leave and requiring working arrangements: no change in the culture employers over a certain size to provide on-site of flexibility was found between 2012 and 2016, childcare facilities. In India, for example, the and there was some evidence of a decline in Maternity Benefit Act was amended in 2017 151 In addition to the EU employer support since 2005. to extend paid leave from 12 to 26 weeks in Directive on non-financial and diversity reporting organizations employing 10 or more workers, discussed in Part 1 and Between 2012 and 2016, only three forms and to oblige employers with 50 or more Annex 1, in 2014 the European Commission of flexibility (out of 18 options) showed a workers to provide on-site or nearby care issued a Recommendation significant increase: facilities for children under six years of age.152 on strengthening the principle of equal pay • employers allowing (at least Similarly, in El Salvador the 2018 Special between men and women some) employees to return to Law for the Regulation and Installation of through transparency. It work gradually after childbirth or Childcare Centers obliges employers with over confirmed “increasing female labour-market adoption (73 percent in 2012, 81 100 employees to provide nursery facilities participation and the equal percent in 2016); for workers’ children up to three years of age, economic independence of women and men; • employers allowing (at least some) starting in 2020 (FLA 2018). reducing the gender pay, employees to receive special earnings and pension gaps and thus fighting consideration after a career break Regulations, however, often take a long time poverty among women; for personal/family responsibilities to be implemented. In some countries, low and promoting equality between women and men (21 percent in 2012, 28 percent in implementation rates are a major problem. in decision-making” as 2016); The Republic of Korea, for example, mandates three of five priority areas • employers allowing (at least some) a comprehensive set of care-related measures. in the document, Strategic Engagement for Gender employees to work some of their Apart from maternity and pregnancy leave, Equality 2016–2019. This regular paid hours at home on a however, relatively few companies comply. A was followed by the 2017 EU Action Plan aimed at regular basis (33 percent in 2012, 40 survey of 1,000 businesses in 2013 found the tackling the gender pay gap. percent in 2016). following implementation rates for policies The Plan identifies eight main strands of action: relating to paternity leave (19.4 percent), improving the application In several countries, the regulatory environment working hour reduction for childcare (8.4 of the equal pay principle; combating segregation in is moving in a care-friendly direction. This is percent), flexible working hours (12.5 percent), occupations and sectors; particularly apparent in some countries of the and workplace childcare centres (39.1 percent) breaking the glass ceiling: European Union. Approved in June 2019, the (Yoo and Oh 2017). initiatives to combat vertical segregation; tackling Directive on Work-Life Balance for Parents and the care penalty; better Carers is the latest in a series of regulations Implementation of care-related regulations valorizing women›s skills, efforts and responsibilities; and guidance addressing the issue of gender now emerging in several countries can be slow. uncovering inequalities and equality.151 The Directive supports “carers’ In the case of the EU, member states have stereotypes (“fighting the fog”); alerting and informing leave”, described as “a new concept at EU level up to three years just to prepare the legal and about the gender pay gap; for workers caring for relatives in need of care or administrative basis for compliance. Similarly, and enhancing partnerships to tackle the gender pay support due to serious medical reasons. Carers in India uptake and implementation of the gap (European Commission will be able to take 5 working days per year. amended Maternity Benefit Act has been 2016, 2017a). Member states may use a different reference sluggish, pending the required regulatory 152 See The Gazette of period, allocate leave on a case-by-case basis, action at the state level and due to a lack India, 28 March 2018. https://labour.gov.in/sites/ and may introduce additional conditions for of clarity as to the cost implications for default/files/Maternity%20 the exercise of this right”. The Directive also employers.153 In such contexts, there is much Benefit%20Amendment%20 Act%2C2017%20.pdf promotes paternity leave (at least 10 working that corporations committed to sustainability days of paid leave); parental leave (four months, principles and performance can do to take the 153 See Pathak et al. 2018; Gupta 2018. with pay level to be determined by member lead.
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Unlike those for gender diversity and the gender the double burden and enhancing work- pay gap, quantitative metrics related to care as a life balance. Given the centrality of care in multifaceted issue are severely underdeveloped. explaining gender inequality and women’s Under current reporting guidance issued disadvantage in the workplace, there is a by GRI and IRIS, the measurement of care- pressing need to develop quantitative indicators related aspects is largely restricted to maternity related to care support other than those related and parental leave associated with childbirth to maternity or parental leave and flexitime. or adoption (see Annex 8).154 Corporate To gauge the performance of companies in the best practice typically relates to whether the care domain, it is important to know something company goes beyond the time requirements about the scale of support in terms of all or stipulated in law and/or extends leave benefits some combination of the following: (i) numbers also to male employees, as well as return and of beneficiaries; (ii) tangible financial benefits; retention rates for employees that have taken and (iii) the extent of flexibility in time use. parental leave. Regarding the numbers of beneficiaries, one When other aspects of care support are approach would be to extend GRI indicators reported by companies, there is a tendency to related to parental leave to care more generally. refer to qualitative indictors related to policy Regarding parental leave, the GRI specifies the intent, the existence of programmes, and tick- following indicators under its 401-3 standard: box “yes” or “no” answers. To rate companies • Total number of employees that were on diversity and inclusiveness, some tools look entitled to parental leave, by gender. no further than whether the company “claim[s] • Total number of employees that took to provide day care services for its employees”; parental leave, by gender. and “claim[s] to provide flexible working hours or working hours that promote a work-life Assessing the care needs of employees in 154 In 2016, IRIS balance” (Thomson Reuters 2018:10). relation to, say, pre-kindergarten, pre-teen introduced a new and elder care would establish a baseline metric on flexible work Bloomberg’s Gender Reporting Framework of the potential universe of employees with arrangements, asking organizations to report 155 aims to assess whether such options are available significant care responsibilities. From there on whether they offer for most employees. Companies are asked the it would be possible to measure (i) the number such arrangements to full-time, part-time, or following: and proportion of employees entitled to care temporary employees, • In markets where this benefit is not support under existing company policies and and to footnote details of the flexible covered by government programmes, programmes, and (ii) the number of employees arrangements offered does the company provide: (i) back- who actually take advantage of such support. and the uptake of up childcare services or childcare This, in turn, would shed light on the scale of them. subsidies or (ii) back-up elder care benefits that may exist on paper but are not 155 As has been noted in relation to elder care, services or elder care subsidies? taken up by employees. the assessment of • Does the company offer an option to care needs can also factor in the intensity control and/or vary the start or end Family-friendly policies are sometimes referred of responsibilities, times of the workday or workweek to as “ghost benefits” given situations in which distinguishing different levels of (for example, flextime) to at least 80 few employees actually use the benefits (Financial need depending on percent of its global employee base? Times 2019b). Referring to the situation of personal or family • Does the company offer an option senior female executives in corporate America, circumstances. to control and/or vary the location and the fact that high-profile tech companies 156 See interview with Anne-Marie Slaughter where employees work (for example, like to publicize their offers of better-paid about her book telecommuting or work from home) parental leave, Anne-Marie Slaughter contends: Unfinished Business: Women, Men, Work, to at least 80 percent of its global “I still think the question is, do they walk the Family (Random employee base? (Bloomberg 2020:5-6) talk? I mean my first question in any of those House, 2015) in Business Insider, 15 companies is, ‘Okay, and how many senior October 2015. But metrics associated with policy intent and executives have actually taken advantage of https://www.business the existence of programmes tell us little about these policies?’ Because unless they say ‘many’, insider.com/anne-marie- slaughter-unfinished- 156 the impact of corporate policy on diminishing or at least ‘some’, it’s not real”. business-2015-10
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Regarding financial support, it would be Transparency as a driver of change beneficial to quantify gross and per beneficiary company spending on (i) maternity and paternity Disclosure related to gender equality remains leave beyond the mandatory minimum, (ii) one of the weakest areas of sustainability care-related subsidies, (iii) back-up care support, reporting. As noted earlier, data are often and (iv) actual childcare services provided skewed towards very partial aspects (for by the company. Concerning time use and example, the percentage of women on boards, locational advantages associated with flexitime sexual harassment) or metrics of limited or and teleworking, it would likewise be useful to questionable relevance (such as unconscious know the number and proportion of employees gender bias training), or such data are simply taking advantage of this support, say, per week not reported. or month. Reporting standards, like those of the GRI, Unfortunately, there is a dearth of publicly call for disclosure on the gender pay gap available financial information on company disaggregated by employee category: investment and expenditure on corporate care. Such information may not be available even GRI 405: Diversity and Equal Opportunity— in-house. Referring to a study of what CEOs Disclosure 405-2: Ratio of the basic salary and require from diversity officers, Edward Hubbard remuneration of women to men. notes that corporate heads “want to see the a. Ratio of the basic salary and impact and ROI of their diversity investments remuneration of women to men for but instead receive only activity and satisfaction each employee category, by significant 157 Tangible benefits which data” (Hubbard 2017). locations of operation. are captured in ROI b. The definition used for ‘significant include cost savings and/or productivity Return on investment (ROI) or value of locations of operation’. and efficiency gains investment (VOI) calculations related to associated with the corporate care support are likely to become As RobecoSAM (2015) points out, however, retention of skilled employees, the costs more commonplace not only as corporations such data are often not disclosed. As in the of hiring and training come under increasing pressure to provide case of other issues examined in Part 2 of this new employees when former support but also in the context of mounting report, such as corporate taxation (Chapter 7) employees leave, evidence that costing of both tangible and and corporate political influence (Chapter 9), and absenteeism. 157 Intangible benefits that intangible benefits is likely to yield positive this implies that the first step within corporate feature in VOI include returns. Chase Manhattan Bank (now JP sustainability performance accounting is to improved morale, focus, commitment Morgan Chase), for example, found that insist on transparency. and well-being in the while the annual cost of back-up care in 2010 workplace; innovation was USD 1.13 million, such care generated Transparency is a crucial driver of change. It associated with female leadership USD 1.26 million in net savings and a ROI not only allows management and stakeholders roles and gender of approximately 110 percent (Cascio and to identify the extent and nature of problems balanced teams; and enhanced corporate Boudreau 2011:180). Patagonia, which provides related to gender equality and areas for reputation that attracts on-site childcare at certain sites, has estimated action; it also assists firms concerned with qualified employees and facilitates access that this costs an estimated USD 1 million reputation and risk management. Companies to markets (Care. a year, most of which is recoverable.158 For projecting themselves as CSR adherents, or com 2019; EHS Today 2016; IFC 2017). the purposes of transformative sustainability even sustainability leaders, may suddenly accounting, it is critical that companies observe a clear gap between their discourse and 158 The company has also estimated that it begin systematically to calculate care-related performance. And by being in the spotlight, recovers 91 percent investment and expenditure related to both these and other firms can become targets of of calculable costs via tax benefits, childcare and elder care. stakeholders concerned with inequality, ethical employee retention performance or risk management. and “employee engagement” related to job satisfaction, not In what is reportedly the first empirical study factoring in various intangible benefits of the impact of mandatory wage disclosure (Macario 2016). on the gender wage gap, gender diversity and
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the economic performance of relatively small The French law also offers the option of a enterprises, Bennedsen et al. (2018) find that in socio-economic classification such as workers, Denmark: employees, technicians/supervisors, engineers/ disclosing disparities in gender pay does executives. Furthermore, it mandates that in fact narrow the gender wage gap. It either the hierarchical or socioeconomic data also can increase the number of women be arranged by age groups (under 30, 30-39, 40- being hired, indicating that the supply 49, and 50 plus). pool of female employees increases as gender pay transparency improves; In addition to data related to a company’s increase the number of female employees global mean and median raw (that is, un being promoted from the bottom of adjusted) gender pay gap, Bloomberg the hierarchy to more senior positions; proposes classification based on income [and] lower companies’ overall wage bills, quartiles, as does the UK government: largely by slowing down the growth of Measure the number of women in male wages.159 your pay quartiles by stacking all full-time employees globally from Equileap draws a connection between highest to lowest compensation and legislation mandating transparency about pay dividing into four equal quartiles. gaps and the best performing companies, that Compensation should include base 159 The study found that the gender pay gap in is, those achieving a mean overall gender pay salary, bonus, stock, and any other firms that were obliged gap of less than or equal to 3 percent. While monetary benefit(s). to report declined by 7 percent between only 27 large corporations of a sample of 1,107 (a) What is the company’s proportion of 2003 and 2008. It did so, 41 percent are located in the UK where women in the top pay quartile globally? also found that these 160 firms experienced a disclosure is mandatory (Equileap 2018a:14). (b) What is the company’s proportion 2.5 percent decline The regulatory tide appears to be moving in of women in the upper middle pay in productivity relative to the control group the direction of greater openness. Beyond ESG quartile globally? comprising non- reporting standards, a variety of government (c) What is the company’s proportion reporting firms. The regulations, shareholder resolutions, ratings of women in the lower middle pay negative effect on net income, however, initiatives and indexes tailored for investors are quartile globally? was compensated by all calling for transparency. (d) What is the company’s proportion savings on male wages (Bennedsen et al. of women in the lower pay quartile 2018).
Great Britain and France, for example, globally? (Bloomberg 2020:4). 160 Equileap maintains introduced legislation in 2017 and 2018, a database on over 3,000 publicly listed respectively, obliging companies over a Employers in Great Britain with over 250 companies with a certain size to report publicly on the gender employees must report (i) the mean and median market capitalization pay gap. A ruling by the United States Equal gender pay gaps, (ii) the mean and median of over USD 2 billion in 23 countries Employment Opportunity Commission in bonus gender pay gaps, (iii) the proportion of and tracks their 2016 required companies with more than 100 males and females receiving a bonus payment, gender balance and commitment to gender employees to report to the government on pay and (iv) the proportion of males and females in equity (Equileap gaps related to gender, race and ethnicity.161 each quartile band (ACAS and Government 2018b). Germany (2017) and Spain (2019) mandated Equalities Office 2019). Published data show 161 While the ruling was blocked by the Trump another approach that gives employees and/ that the percentage share of total female Administration, this or worker representatives the right to know the employees in the lowest pay quartile typically decision is, at the remuneration of comparable employees. exceeds that of men, whereas the percentage time of writing, being challenged in court. share of men in the top quartile is greater than See Bloomberg, 6 Pressures are also building on companies to that of women (Financial Times 2018c). March 2019. “U.S. companies may have provide a breakdown by category of employee to report gender pay rather than just reporting a global corporate Regarding transparency related to care, the data by end of May,” at https://www.pionline. average figure. This may be hierarchical, along challenge is particularly acute since companies com/article/20190306/ the lines presented in Table 6.1 above, and rarely generate and publicly report basic data ONLINE/190309911/u- include entry level or operational level, junior required to assess performance in quantitative s-companies-may-have-to- report-gender-pay-data-by- management, senior management and C-suite. terms. Data could include the number of end-of-may
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employees with care responsibilities, both in The experience of publicly mandated disclosure relation to childcare and elder care; the number of the gender pay gap in Great Britain and of employees entitled to care support under France reveals not only that companies may company policies and programmes; the number provide inaccurate and misleading data,162 but of actual beneficiaries; and the level of financial also the need for explanatory narrative reports support involved per beneficiary. and action plans, including “explicit reference to time-bound and target-driven activities based on best practice policy and practice [sic], Targets as outlined in our strategy to close pay gaps” (EHRC 2018:4). In this regard, France has Transparency related to public reporting of recently mandated a more rigorous approach relevant performance metrics is just the first to disclosure and proof of progress (Le Roux step in sustainability accounting. There are and Kim 2019). Similarly, Bloomberg’s mounting pressures on large employers not Gender Equality Index, launched in 2018, only to disclose but also to explain differences asks companies not only to report on whether related to gender imbalance, the pay gap and they publicly disclose quantitative gender pay lack of progress, and to adopt action plans and gap statistics for the global workforce, but also set targets. While companies increasingly report whether they publicly share a specific, time- gender equality data, many fail to combine this bound action plan to close the gender pay gap information with time-bound target-driven (Bloomberg 2020:4).163 plans and programmes. Even among a group of signatory corporations to the UN Women’s There are different reference points or Empowerment Principles that were assessed benchmarks that might guide corporate in 2018, only 30 percent set time-bound, sustainability performance and accounting measurable goals and targets in their strategies, related to gender balance and the pay gap. From while just 15 percent set goals to build the the perspective of sustainable development— pipeline of women for management positions when understood in terms of thresholds and
162 See The Guardian. 2019. “Lack’ of (UN Global Compact et al. 2018). fair allocations associated with thriving, justice sanctions makes a and equality—the ultimate target for the gender mockery’ of gender pay gap reports.” Posted When assessing the response to legislation pay gap would presumably be zero. Whether 28 February. https:// mandating public disclosure, the UK Human this can be achieved, however, depends on equal www.theguardian.com/ society/2019/feb/28/ Rights Commission found that while one in gender representation, particularly in more lack-of-sanctions-makes- five employers in the sample “had produced an senior occupational categories. Where this does a-mockery-of-gender-pay- gap-reports identifiable action plan that was time-bound not occur, something like the Equileap criterion and included target-driven activities, only 11% for “best performing companies” could be 163 The Index aims to track the performance had set themselves targets that would enable considered, namely a pay gap equal to or less of large corporations them to measure the progress of their plans than 3 percent. Rapid convergence, measured committed to transparency. year-on-year” (EHRC 2018:5). And when by the annual percentage decrease in the pay Companies include presented, action plans “in many cases…made gap, would be an indicator of meaningful those “scored at or above a global a general reference to activities they would progress. threshold established undertake, such as ‘reviewing flexible working by Bloomberg to policies’, without stating when they might do As regards gender diversity, there are two ways reflect disclosure and the achievement or this or, in some cases, their purpose for doing of thinking about targets from an aspirational adoption of best-in- so”. Among those that did set targets was a perspective associated with thriving. One class statistics and policies.” Bloomberg. construction company that aimed to increase would be to assume that the appropriate target 2018. The 2019 the number of women earning over GBP for gender balance should be determined by Index included 230 companies 40,000 a year to at least 25 percent by 2025, demographic balance, that is, 50-50. Another headquartered in 36 and an entertainment firm that committed would be to adjust this figure based on the type countries. Eligibility for inclusion in the Index to ensuring that women would represent 30 of analysis found in the capability approach increased to 6,000 percent of their senior management and that of Amartya Sen (see Chapter 3 and Annex public companies in the gender pay gap would be reduced to less 6), where well-being is seen as the outcome 84 countries in 2020. (Bloomberg, 2019d). than 10 percent by 2020. of people realizing their choices. From this
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Table 6.3. Gender balance compared: perspective, one could factor in the results of Top performers versus the rest (%) survey data on the percentage of women who Senior Region Board Executives Workforce want to engage in paid work, either full-time or management part-time. Surveys conducted by Gallup and the Top 200 34.3 25.6 31.9 41.7 ILO (2017), for example, suggest a global figure Total sample* 28.7 18.0 25.2 38.5 of 70 percent, with considerable country and Asia-Pacific 23.9 19.2 28.8 41.3 regional variation: 85 and 82 percent in the Europe 31.5 15.6 23.7 37.8 cases of Europe and sub-Saharan Africa, versus North America 26.4 21.5 26.5 38.1 52 and 62 percent in southern Asia and the * 1,107 publicly listed companies Arab States, respectively. But as Sen also points Source: Equileap 2018b out, structural disadvantage of social groups can skew perceptions and suppress expectations. He many more companies reporting boardroom notes, for example, the case of “the subdued gender diversity figures of 30 percent or and subjugated housewife reconciled to her role more, as compared with the executive level. and her fate” (1985:22). This begs the question In several developing countries, though, it is of whether the normative target should be at the executive level where gender diversity is positioned somewhere between parity and relatively high. A Vigeo Eiris rating of more stated subjective preferences. These are than 3,800 listed companies in 60 countries methodological questions that future work on places Chile at the top, with 29 percent (Vigeo sustainable development indicators and targets Eiris 2018). The rating also identified 20 firms related to gender equality needs to address. where women occupied between 43 and 69 percent of executive-level positions, far higher Another approach to target setting is to focus than the average figure of 20 percent. Leading on existing best-in-class comparisons, voluntary companies for both boardroom- and executive- targets set by ratings of standard-setting bodies, level gender diversity, identified in the rating, and international regulatory standards. are listed in Annex 10. The best-in-class benchmark positions the performance of what are regarded as corporate Another reference point could be the gender equality leaders as the comparator. performance of countries identified as leaders Several corporations are setting short-term or top performers. According to the OECD, targets for gender balance in the range of 25 these are countries where the female share of percent to 30 percent for senior management, managers is above 37 percent and the gender and parity for the global workforce. Accenture, gap in the labour force participation rate is for example, aims to achieve 25 percent female below eight percent (OECD 2018a). The Vigeo managing directors by 2020 and gender Eiris rating identifies Norway, France, Sweden, balance in the overall workforce by 2025.164 Finland and South Africa as leaders in this Similarly, Vodafone has set a 30 percent target regard (see Table 6.4). for management by 2020 and a 50/50 split for global graduate hires (Barratt 2018). Gender diversity goals are sometimes the first target that companies set not only to address The Equileap ranking of top companies for a core aspect of inequality per se but also as a 164 In 2018, women gender equality provides data for a group of means to correct the gender pay gap. When constituted 41 percent what it regards as the top 200 publicly listed the financial services group Citi found that its of Accenture’s global 165 workforce (Barratt companies. Table 6.3 shows the difference in global gender pay gap in 2018 was 71 percent 2018). performance of this group in relation to gender of the global median for men (and 93 percent 165 These are companies balance with a wider sample of publicly listed for United States minorities compared to with a market companies. non-minorities), the company announced: capitalization of over two billion dollars. “As a starting point, our goal is to increase 166 See Sara Wechter Mandatory regulations and voluntary standards representation at the Assistant Vice President (2019), “Global pay related to women’s representation on company through Managing Director levels to at least equity at Citi”. Available at https://blog.citigroup. boards, particularly in Europe, North America 40% for women globally and 8% for Black com/2019/01/global-pay- 166 and Australia, have had an impact, with employees in the U.S. by the end of 2021”. equity-at-citi/
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Table 6.4. Women’s representation at board Box 6.3. Women in Finance Charter and executive levels, by leading countries
Executive Country Board Concerned with the lack of gender balance within level the financial services sector in the United Kingdom, Norway 41 25 HM Treasury launched the Women in Finance Charter in 2016. By mid-2019 the Charter had 350 France 39 20 signatories with a total of approximately 800,000 Sweden 34 25 employees. The Charter emphasizes time-bound Finland 29 23 target setting to increase the percentage of women South Africa 23 28 in senior management. HM Treasury recommends that signatories meet the target of 33 percent Source: Vigeo Eiris 2018. by 2020 set in 2016 by the Hampton-Alexander Review for women’s representation at board and senior management levels.*
Some voluntary standard-setting initiatives Based on a sample of signatories, an assessment of the impact of the Charter carried out in 2019 also provide pointers as to quantitative targets. found that: A particularly ambitious target was set by • 45 percent of 123 signatories 167 See The 30% Club at analysed had met or exceeded https://30percentclub.org signatories to the 2008 Southern African Development Community’s (SADC) Protocol their targets for female 168 In Belgium, Germany, representation in senior France and Italy on Gender and Development. Signatories management. A further 42 percent where legislation committed to a target (which no country met) that have targets with future was introduced, the of appointing women to 50 percent of decision- deadlines said they are on track to percentage of women meet them. on boards increased by making positions in both public and private 238 percent between • For signatories that still have October 2010 and sector organizations by 2015 (Viviers et al. 2017). a target to reach, average 2016 when it reached female representation in senior approximately 34 Initiatives such as the Women in Finance management is 31 percent. If they percent. In contrast, can maintain their current rate of the rate increased Charter, which aims to improve gender balance increase, these signatories are just 76 percent in within senior management in the UK financial on track to meet their 38 percent other EU28 countries, where the average services sector, emphasize the need for time- average target in three years. was approximately 20 bound target setting and public reporting. Its aim • The majority of signatories have percent (European set ambitious targets for increasing Commission. 2017. is to reach 33 percent women’s representation their proportion of senior women. Fact Sheet Questions on boards and in senior management by 2020 Twenty-five percent have a goal of and Answers: What parity. Two-thirds have set targets is the EU doing for (see Box 6.3). women’s rights and at 33 percent or above. gender equality? 8 March http://europa. Similarly, the 30% Club, established in eu/rapid/press-release_ 2010 to engage listed companies and leading Source: Seddon-Daines 2019. MEMO-17-470_en.htm). professional services firms in a campaign to * See Hampton-Alexander Review, “FTSE Women In 2014, the European Leaders Improving Gender Balance in FTSE Leadership.” Commission also promote gender diversity, urges (but does not 8 November 2017. https://ftsewomenleaders.com/wp- set itself the goal of require) companies to set a time-bound target content/uploads/2017/11/Hampton_Alexander_Review_ ensuring that the Report_FINAL_8.11.17.pdf proportion of females of 30 percent for women’s representation on in middle and senior boards.167 management would increase from 27.5 percent to 40 percent Various government regulations also specify discussion and set out in a number of during the five-year “Juncker mandate”, targets, particularly in relation to gender EU Member States/EEA countries. This (to November 2019). balance on boards. Goals of 30 to 40 percent figure is situated between the minimum See “Commission are common (Lee et al. 2015). The European of the ‘critical mass’ of 30%, which has strives to reach 40 percent women in Union actively promotes targets, following been found necessary in order to have a management by end the adoption in 2012 of a proposal for an EU sustainable impact on board performance of mandate.” 19 July 2017. https://www. Directive on gender equity on the boards of and full gender parity (50%) (European euractiv.com/section/ publicly traded companies.168 As stated in the Commission 2012:4). economy-jobs/news/ commission-strives-to- proposal: reach-40-women-in- The proposed objective of 40% for With regard to the gender pay gap, there seems management-by-end-of- mandate/). the minimum share of both sexes is in to be considerable agreement that something line with the targets currently under approximating parity is desirable. A possible
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benchmark could be the performance of Ambitious time-bound quantitative targets companies or countries identified as leaders to reduce the gender pay gap are a scarce or top performers. According to the OECD commodity, whether at the level of corporate (2018a), top-performing countries are those sustainability accounting or normative and with gender pay gaps of less than 10 percent. regulatory initiatives and proposals. There The Equileap scorecard method, for example, is clearly frustration, however, with the slow which is used for identifying and ranking the pace of progress. RobecoSAM’s assessment of best performers in terms of gender equality, the gender pay gap among 2,686 companies singles out companies with a mean gender pay between 2013 and 2017 suggests it is worsening gap of 3 percent or less: “27 companies in the for “executives”, not changing for “managers” data sample published figures showing a mean and improving slightly for “non-managers”. overall gender pay gap of less than or equal to 3% Even in relation to the last category, at the in the company’s country of incorporation”169 present pace of change it would take 22 years to (Equileap 2018b:14). eliminate the gap (RobecoSAM 2019).
The best-in-class comparison framework Data presented by the Institute for Women’s identifies companies that (i) have nearly or Policy Research show that the gender pay gap in already achieved parity, and (ii) those where the United States declined just three percentage the pace of progress well exceeds conventional points in each of the past three decades, from rates of change. Mandatory reporting in 74.2 percent in 1997 to 77.8 percent in 2007 Great Britain has revealed that 24 percent and 80.5 percent in 2017 (IWPR 2019). On this of employers have no gender pay gap, or one trend it would take until about 2070 to close that favours women.170 Employers in this group the gap in the United States (Chamberlain et include Unilever, BT and Ocado. al. 2018). Other sources refer to 2119 as the relevant year in the United States.171 Best-in-class comparisons can also provide pointers as to the pace of change. Given the Data for Great Britain show that progress in 169 Equileap researched variations in initial conditions and labour closing the gender pay gap has been extremely 747 companies from 23 developed market contexts that different firms and slow. Between 2012 and 2019 the gender pay economies in detail industries experience, timeframes associated gap for full-time employees decreased by 0.6 and found only 18 with gender diversity will inevitably vary. In percent, and actually increased slightly in 2019 percent of them (138) published gender relation to women’s representation in the from 8.6 to 8.9 percent. Progress is more evident segregated information United States and Canada, a Lean In and in the case of part-time workers, largely due to on pay, and only 4.4 percent (33) claimed McKinsey & Company study found significant increases in the national minimum wage. Data a gender pay gap of 3 variations by industry at different hierarchical for 2019 record a 0.5 percent decrease in the percent or less. levels—ranging from 10 percent to 33 percent, gender pay gap for all employees (full- and part- 170 See “Gender pay 172 gap: Eight in 10 UK for example, in the C-suite (see Table 6.5). time), which stood at 17.3 percent. companies pay men more than women.” The Independent, 5 April 2019. https:// Table 6.5. Representation of women across selected industries www.independent.co.uk/ (United States and Canada) news/business/news/ gender-pay-gap-widens- men-women-salary-latest- Industry Entry level % Senior management % C-suite % figures-uk-a8855366.html
171 Banking and consumer finance 50 38 27 See The Telegraph 2018. Food and beverage distribution 46 24 15 172 See The Guardian. Health-care systems and services 75 57 33 ‘UK gender pay gap IT services and telecoms 35 29 15 for full-time workers increases.’ 29 October Oil and gas 38 20 10 2019. Accessed 8 Retail 60 45 28 November 2019. Transportation, logistics, infrastructure 56 33 15 https://www.theguardian. com/money/2019/ Source: Lean In and McKinsey & Company. 2019. Accessed 20 April 2020. oct/29/uk-gender-pay- https://wiw-report.s3.amazonaws.com/Women_in_the_Workplace_2019.pdf gap-full-time-workers
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Image source: larepublica.pe/carlincatura/. Reproduced with permission from Carlos Tovar “Carlín”. (iv) teleworking; (v) childcare subsidies and on-site provision; (vi) emergency back-up care support; and (vii) transition assistance What might be an acceptable rate of progress? associated with extended leaves.176 Companies While this would clearly depend on the scale of that offer all seven programmes can at least the pay gap, it is apparent from the narratives claim to have broadened their approach of some corporations—adidas for example173— beyond short-term parental leave associated and other organizations promoting gender with childbirth or adoption to recognizing pay equity that a narrowing of 3 percent or care as a lifecycle issue. more per annum is viewed favourably. A 2016 KPMG study on the gender pay gap in Australia The SDGs can serve as a useful framework for notes the positive cases of a mining firm and time-bound target setting. The goals and targets 173 See adidas, Gender an insurance company that reduced pay gaps referred to in Box 6.1 not only set 2030 as a Pay Gap Report by approximately 3 percent and 6 percent, key date, but also have prompted numerous 2019. Accessed 8 November 2019. respectively, per annum over several years corporate sustainability initiatives to meet the https://www.adidas- (KMPG 2016).174 In 2016, the engineering and goals. In addition to several initiatives referred group.com/media/filer_ public/99/35/993507 construction corporation AECOM received the to in Part 1 that promote sustainability reporting ea-05d4-4164-9415- employer of choice citation from the Australian aligned with the SDGs, there are others actively 76e9f5a9af1f/190326_ government’s Workplace Gender Equality promoting compliance. These include the adidas_gender_pay_gap_ report_2019_v6.pdf Agency for achieving, inter alia, a 3.4 percent Equal Pay International Coalition (EPIC), led 174 The companies in reduction in the gender pay gap during the year by the ILO, UN Women and the OECD. EPIC question were St. under review.175 engages corporations (among others) to pledge Barbara (mining) and TAL (insurance). to take concrete steps to accelerate the closing As regards company support for caregiving, of the gender pay gap and the achievement of 175 See “AECOM invests 1 million to close quantitative normative targets are less obvious. pay equity within the framework of target 8.5 of the gender pay gap” An alternative could be to assess the extent to the SDGs. Nevertheless, the specific references https://www.aecom.com/ au/employer-of-choice- which companies have in place a portfolio within SDG 5 and 8 to “full participation” of gender-equality/ of support programmes that includes seven women in managerial positions and “equal pay 176 This formulation elements: (i) paid parental leave related to for work of equal value” fall short of what is benefits from discussions with Mark pre- and post-natal care or adoption; (ii) family required to actually achieve gender balance and McElroy. leave for other caregiving needs; (iii) flexitime; a significant reduction in the gender pay gap.
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⚫ Concluding remarks
The following key takeaways emerge from this normative goal for the gender pay gap, with discussion. From a transformative perspective, any disparity not to exceed, say, three percent. corporate sustainability accounting needs not only to emphasize gender equality, but also to While sustainability accounting related to focus on issues and indicators that relate to the gender diversity and the pay gap has shown structural underpinnings of gender inequality signs of improvement in recent years, the and disadvantage in the workplace. From this same does not apply to the issue of care. It vantage point, key performance issues involve is imperative for standard-setting bodies to the gender pay gap, gender balance and develop more effective reporting guidelines support for unpaid care work. and targets related to care. Conventional sustainability disclosure and reporting appear Conventional disclosure and reporting to have missed a key point about care as a related to these aspects suffer from two major material issue: it is not simply a short-term limitations. First, the metrics and indicators matter related to maternity or parental leave do not necessarily tell us very much about for pre- and post-natal care or adoption, but a whether the structural conditions related to long-term lifecycle issue. While public policy segmented labour markets and segregated must play a key role in facilitating care, there occupational categories, as well as cultural are numerous ways in which companies norms, bias and the care burden, are being themselves can also provide support. addressed. Second, conventional indicators often relate to very partial aspects of gender A starting point can be disclosure that inequality, injustice and disadvantage that reveals whether companies are providing a miss the bigger picture. comprehensive range of support programmes. But standard-setting bodies and companies There needs to be greater clarity and could go further, identifying quantitative consensus regarding methods to calculate indicators to measure corporate sustainability the gender pay gap and more attention paid performance related to care along three to transparency via publicly reported data, dimensions: (i) levels of financial support; (ii) time-bound targets, and granular disclosure flexible time use arrangements favouring care of pay gaps by occupational category and and work-life balance; and (iii) both potential by remuneration category (such as income and actual beneficiaries. Potential beneficiaries quartiles). include both employees with significant care responsibilities as well as those entitled to care Metrics and targets related to gender balance support. Actual beneficiaries include those need to extend beyond company-wide who actually take advantage of various forms averages, and the boardroom or the C-suite, to of care support to which they are entitled. a diverse range of occupational, hierarchical and remuneration categories. This focus In a context where the pace of change, would provide a window onto how women particularly in relation to the gender pay gap are faring in relation to four transitions: (i) and care, has been slow, where time-bound from the home or the informal economy targets have been neglected, and where more to the formalized workforce; (ii) from and more corporations are acknowledging the operational to supervisory or managerial relevance and importance of the Sustainable roles; (iii) from junior to senior management; Development Goals, specific SDGs and their and (iv) through the glass ceiling, represented 2030 timeframe provide important markers by the C-suite and the boardroom. Targets for corporate sustainability performance and within the range of 30 percent to 50 percent, accounting related to gender equality. Yet SDG and the specific goal of 40 percent, constitute targets related to pay and diversity fall short of benchmarks for gender diversity that are what is required to ensure gender equality in gaining currency. Parity is the obvious the workplace.
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CHAPTER 7 Corporate Taxation
Introduction
The G20/OECD-led“ tax The issue of income inequality involves agenda is revolutionizing not only patterns of distribution within tax arrangements. Tax corporate structures and value chains, but 177 As Faccio and transparency, in the form also distribution involving other stakeholders, Fitzgerald (2018:83) of effective exchange of not least governments and citizens affected by note: “Corporation tax is, in essence, a information between tax taxation. A secular trend under globalization withholding tax on administrations, country-by- has been the shift from progressive to regressive dividends and is thus strongly progressive, country reporting by MNEs forms of taxation, reflected, for example, reducing income to tax administrations, in lower rates of corporate tax and income inequality; sales taxes mandatory disclosure of on the other hand are tax paid by the rich, as well as higher rates of usually regressive”. advance pricing agreements consumption tax.177 Corporations often engage 178 There has been an and tax rulings, and in so-called aggressive tax strategies and planning almost continuous aggressive tax schemes—all which foster tax dodging. And in a context decline in the average corporate tax rate in require that corporations of increased geographical mobility of capital, the OECD countries, learn to operate in an many governments engage in tax competition from about 43 percent 178 in the mid-1980s to environment where their tax that offers investors both lower statutory rates 32.5 percent in 2000 arrangements are subject to and tax holidays or other incentives (Owens and 23.9 percent in unprecedented scrutiny and and Zhan 2018).179 The growth of intra-firm 2018 (Clausing 2018; OECD 2018b). where cooperation between trade within complex global value chains, 179 Tørsløv et al. (2018) tax administrations has as well as digitalization and tax havens, have report that the global intensified. facilitated both illegal tax evasion and various average statutory corporate tax rate forms of tax avoidance associated with transfer halved from 49 to 24 Jeffery Owens and James Zhan pricing and profit shifting—activities that can be percent due to tax competition between (2018:5) positioned at diverse points along the spectrum 1985 and 2018. of ethicality and legality (Shaxson 2019).
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As Christian Aid, Oxfam and ActionAid point indicators that are key for gauging aspects of out: (ir)responsible tax behaviour, namely, the tax the core of public and government gap and the misalignment of profit allocation concern over corporate tax behaviour is with real economic activity. This is followed by a fairly straightforward, i.e. the perception brief review of recent normative and regulatory that some corporate taxpayers may initiatives to improve corporate fiscal disclosure. be taking steps to ensure that taxable income, profits or gains do not arise in jurisdictions where business operations Why tax justice is a key are actually located, but elsewhere, performance issue particularly in jurisdictions where they will be subject to low or no tax (2015:15). As Brock and Pogge point out, issues of tax justice intersect with those of global justice 180 PRI 2018a; Sikka 2010; While the international development com not least because “practices of international Muller and Kolk 2012. munity has long been concerned about taxation sustain a substantial headwind against 181 See Committee corporate strategies to minimize tax revenues which developing countries must struggle and of Experts on via such means as transfer pricing and the failure to pay or collect taxes greatly reduces International Cooperation in Tax use of tax havens, the issue has often flown revenues available to address poverty, which Matters 2018. under the radar within corporate sustainability is among the most pressing global injustices 182 As defined by the accounting.180 When addressed, it tended to be humanity is currently facing” (2014:2). OECD, base erosion on a sectoral basis, notably in relation to the refers to efforts to reduce tax bases extractives industries where multistakeholder Regressive and aggressive features of contempo through deductible regulation and pressure have resulted in rary fiscal regimes risk reducing the scope for payments such as interest or royalties. standards that a number of corporations have domestic resource mobilization. Estimates of Profit shifting refers adopted. This has begun to change in recent revenues losses from base erosion and profit to artificially shifting 182 profits to low or no- years as more attention has focused on the issue shifting (BEPS) vary significantly. BEPS refers tax locations where of responsible tax behaviour within the field of to tax avoidance strategies that exploit gaps and the company has little or no economic corporate social responsibility (Stephenson and mismatches in tax rules to artificially shift profits activity. Accessed Vracheva 2015). to low or no-tax locations.183 30 November 2019. http://www.oecd.org/tax/ beps/about/ The Sustainable Development Goals, According to Tørsløv et al. (2018), 36 percent of 183 How to separate BEPS notably SDG 17, have reinforced interest and multinational profits were shifted from affiliates from real economic concerns related to corporate taxation, which outside of headquarter countries to tax havens activity is one of the major challenges in is seen as a key mechanism for achieving in 2015 (55 percent in the case of affiliates of US measuring BEPS. the level of domestic resource mobilization TNCs). This amounted to approximately USD The mere fact that an MNE or its affiliates required to implement the SDGs via, for 600 billion dollars. The OECD suggests that take advantage of example, investment in public infrastructure losses to tax authorities could have amounted different countries’ and services.181 Clearly, it is also relevant for to up to USD 2.1 trillion over 2005–2014, tax rates does not, in itself, amount to BEPS, achieving SDG 10—reducing inequality both and are “conservatively estimated at between notably in contexts within and between countries. USD 100 billion and 240 billion annually. where such a criterion underpins investment This is equivalent to between 4% and 10% of in physical plant or a While the primary responsibility for global revenues from corporate income tax” factory. reconfiguring tax regimes, of course, lies with (OECD 2015:1). Studies employing different 184 As Bradbury et al. note: governments, there is much that corporations methodologies, and including more countries, “One final shortcoming of almost all available can do to facilitate fiscal restructuring in a cite annual figures of USD 500 to USD 647 data sources is the progressive and transformative sense. This billion (see Table 7.1).184 Furthermore, Cobham underrepresentation of developing countries. chapter examines how corporate disclosure and Janský find that “… intensity of losses is This may lead to and reporting related to tax matters can be part substantially greater in low- and lower middle- underestimates of global profit shifting, of this process. It begins by recalling why tax income countries; and in sub-Saharan Africa, especially given the justice should be regarded as a key performance Latin America and the Caribbean, and in significance of BEPS in developing countries issue within corporate sustainability disclosure. South Asia compared to other regions” (2018). found by some recent The discussion then turns to metrics and studies” (2018:96).
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Table 7.1. Estimates of the fiscal effects of BEPS
Author, fiscal estimate approach (date) Range (USD billions) Year (level)
UNCTAD, offshore investment matrix (2015) 200* 2012
OECD, aggregate tax rate differential (2015) 100–240 2014
Crivelli et al., tax haven spillover (2016) 123 2013 short-term
Crivelli et al., tax haven spillover (2016) 647 2013 long-term
Clausing, excess income in low-tax countries (2016) 280 2012
Cobham and Janský, tax haven spillover (2018) 500 2013 long-term
Janský and Palanský, offshore investment matrix (2018) 80+* 2015
* Includes only FDI-related BEPS Source: Adapted from Bradbury et al. 2018:101
There is a risk that the topical issue of BEPS crucial 21st century infrastructural, social and may divert attention from many other ways climate issues. A proposal introduced by Piketty of reforming or overhauling tax regimes in in 2018 called on the EU to quadruple the EU developing countries (Forstater 2018; Moore budget via fiscal reforms that would generate and Prichard 2015). Potential fiscal revenues approximately 800 billion euros (4 percent of lost through subsidies associated with tax GDP). Apart from wealth taxes, this proposal credits, exemptions and rate reductions, for contemplated raising corporate profit taxes example, are significant. Forstater notes that: across the EU to a unified rate of 37 percent, “While data is patchy overall they appear to be thereby raising an estimated 300 billion euros.185 non-trivial amounts of money, estimated at 2 percent of GDP in Ghana, 2.5 percent of GDP Second, in the current and future context in Kenya and Tanzania, and 5 percent of GDP of climate change, ageing societies and fiscal in Brazil” (2018:24). As for revenue foregone deficits, it is likely that governments will turn through corporate tax incentives, one estimate to carbon and other taxes, or regressive pension for 20 developing countries found a simple and social policy reforms, that will impact the average of 0.6 percent of GDP (Hearson 2013). working and middle classes and other social groups. As seen in 2019 in France (with the But non-realizable revenues are only one part of Gilets Jaunes) and Chile, social and political the reason why tax justice is necessary. Political movements can quickly mobilize against economy analysis reveals other reasons. First, such taxes and are likely to do so in contexts as Piketty points out, higher levels of corporate where societal perceptions of gross inequality and wealth tax are key for correcting a structural exist: “Why should we be paying more when fault in the market economy, whereby the the rich are getting richer?!” Similarly, why rate of return on capital exceeds the rate of should small and medium-sized enterprises economic growth. As noted earlier, this sets us (SMEs) feel inclined to pay more in taxes if the on a path to a new Gilded Age (a return to the perception or reality is that large corporations gross inequalities of the late 19th century) with are aggressively minimizing their taxes and that extremely high concentrations of capital that are governments are facilitating this process. As “potentially incompatible with the meritocratic Tørsløv et al. point out, SMEs are already at a values and principles of justice fundamental to competitive disadvantage as a result of profit modern democratic societies” (Piketty 2014:26). shifting as it “reduces the effective rates paid by Only by taxing corporations and the wealthy multinationals corporations compared to what can sufficient revenues be generated to enable local firms pay …” (2018:33). national and supranational governments (for example, the EU) both to realign the rate of Third, as the economic power of elites increases,
185 The Guardian. 9 return on capital and the rate of growth, and so too does their capacity to shape public policy. December 2018. to mobilize the resources needed to deal with Often, this policy influence favours narrow
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interests and rent seeking. But corporate policy The tax gap and misallocation influence can also be enlightened and work of profits towards compromises or social pacts that can raise all boats, as was notable, for example, in Aggressive tax planning by corporations and the decades following the Second World War tax competition by governments can give rise in Western and Northern Europe. Forstater to a significant gap between the statutory (2018) makes the case that multinational and effective tax rates, that is, between what enterprises can potentially be allies in relation companies are expected to pay according to to tax justice. Key elements in this reasoning official fiscal policy and what they actually include the following: pay. • MNEs, and the private sector more generally, are not a homogenous Research carried out by MSCI ESG Research category; different multinationals on 2,160 companies in the MSCI ACWI have different levels of appetite for Index186 compared each company’s reported engaging in corrupt practices. tax payments between 2011 and 2015 to the • More efficient firms tend to do average corporate tax rate of the countries better in investment and operating in which it generated revenues. Among the environments where more of the findings were the following (Sayani 2017): transfers to and from the business • About a quarter, 531 companies, were (including taxation) are through found to have a “high tax gap” of 10 official “rules-based” channels. percent or more below the average • Leveraging political, consumer and statutory rate. Their average effective investor influence on multinational tax rate was about 14.3 percent, less corporations has often been used than half of the average “expected” as a strategy by governments, civil statutory rate of 31.8 percent. society organizations and pension • Among these companies, 381 (71 funds seeking to break vicious percent) were MNEs that may face cycles. Companies may then higher regulatory risks given that the become advocates for legal reforms global tax reform movement is largely and better enforcement, and for focused on cross-border tax avoidance. international cooperation. • Tax gap size was not uniform across • Multinationals have an interest sectors. Information technology leads in securing public confidence in the pack followed by health care. the tax system to prevent toxic Approximately 40 percent and 35 uncertainty and risk. There are, percent of the companies in these however, notable barriers to private sectors had a tax gap greater than 10 sector involvement in tax system percentage points, respectively. In reform, including lack of mutual contrast, less than 10 percent of real understanding, miscommunication estate, utilities, energy and telecom and real or perceived conflicts of companies had a gap of 10 percentage interest. points or more. • Were regulators to close the tax gap Such factors suggest that some MNEs may be in completely, it could mean additional a position to not only be more transparent and aggregate tax payouts of around USD facilitate technical solutions but also be part of 220 billion for MSCI ACWI Index a social contract promoting accountability and constituent companies with a tax gap. distributive justice through formal institutions. The bulk of the burden (USD 150 186 The All Country In reality, however, many MNEs engage in billion) would be borne by MNEs. World Index (ACWI), maintained by Morgan the types of corporate political interventions Stanley Capital discussed in Chapter 9 that exert pressure The MSCI study also points out how con International (MSCI), comprises stocks from on public policy in favour of regressive and ventional disclosure impedes accurately esti approximately 50 aggressive approaches to fiscal “reform”. mating a company’s tax gap, given countries.
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the lack of granular disclosure of relevant Much of the responsibility for fixing this financial metrics. Typically, companies situation falls, of course, on governments and tend to lump their geographical segments public policy. Particularly important in this into larger regions as opposed to providing regard is work on BEPS and CbC reporting, a country-by-country (CbC) breakdown. which is key for assessing “if taxes paid match For this reason, regulators’ initial focus business substance” (PRI 2018b), as well as for is on improving the transparency facilitating public scrutiny (ActionAid 2015) around cross-border transactions. Several and risk assessment by investors (PRI 2018b).188 countries have already enacted or are in the process of enacting laws mandating Transparency associated with CbC reporting
187 Like the MSCI study, CbC disclosure of financial metrics sheds light not only on effective tax rates and ITEP recommends that (Sayani 2017:8). amounts paid by jurisdiction and affiliate, companies be required but also on corporate revenues, employment to publicly disclose data on a country-by- Among the multinational companies in the and assets by country—the “denominator”, country basis. “Ideally, MSCI ACWI Index in 2016, only 45 percent in other words, for metrics needed to gauge this would include the disclosure of disclosed more than three quarters of their what a fair profit and tax allocation would total revenues, profit, revenue using the CbC format. “Moreover, look like. Within the field of voluntary income tax paid, tax cash expenses, stated CbC disclosure beyond revenue and assets on reporting, Vodafone has taken the lead capital, accumulated metrics such as profits, taxes, etc., as required by in disclosing such data.189 This is key for earnings, number of employees on a the impending regulations, is seldom observed assessing the extent of alignment among such full-time basis, and among companies (Sayani 2017: 8). variables as taxes paid, profits and revenues book value of tangible or employment (see Table 7.2). Faccio and assets” (Gardner et al. 2019:19). A study by the Institute on Taxation and Fitzgerald note that: 188 In 2013, the OECD Economic Policy (ITEP) of large profitable The…data…clearly shows the mis Action Plan on BEPS corporations in the United States found that alignment between the current taxable was launched, setting out 15 specific action even following the significant 40 percent tax profit allocation and indicators of the points. Guidance on cut introduced by the Trump administration in Group’s real economic activities (sales, domestic legislative and administrative 2017 they still paid an average federal income employees and assets) in the countries changes followed in tax rate of 11.3 percent on their 2018 income— where Vodafone operates and thus 2015. Various EU approximately half the 21 percent statutory rate. the potential for BEPS activities by countries subsequently adopted CbC reporting The study also notes that: the Group through the use of low-tax regulations. The United Determining the tax rates paid by the ‘conduit’ countries (2018:75). Kingdom, for example, introduced CbC nation’s biggest and most profitable reporting regulations corporations shouldn’t be hard. Enhanced fiscal disclosure could also shed that came into effect in 2016 for large Lawmakers, the media and the general light on another trend that has often been MNEs headquartered public should all have a straightforward overlooked, namely what has been happening in the UK, and some UK sub-groups of way of knowing whether our tax system to companies’ total tax contribution (TTC) non-UK MNEs, which requires the biggest and most profitable and the share of TTC accounted for by must report revenues, companies to pay their fair share. But in corporate income tax. Companies generally profits, taxes and other information by fact, it’s an incredibly difficult enterprise. pay far more to (local, state and federal) jurisdiction in which The fact that a report such as this takes governments via other taxes such as payroll, they operate on an annual basis. See: several months to complete illustrates the property, dividend and value added taxes. https://www.gov.uk/ need for clearer and more detailed public Over time, however, the percentage share of government/publications/ country-by-country-reporting- information about companies’ federal corporate income tax has tended to decline. A updated. Accessed 30 income taxes (Gardner et al. 2019:19).187 UK survey showed that (i) for every GBP 1 of November 2019. corporation tax there were GBP 4.46 in other 189 Vodafone Group Plc. This analysis has several implications for taxes, (ii) TTC tended to trend downwards Taxation and our total economic contribution corporate disclosure and reporting related to between 2007 and 2015, with increased rates to public finances sustainability performance. It suggests the need reported in recent years, and (iii) there was 2016-2017. Accessed 30 November 2019. for high levels of transparency of disclosure a significant change in the relative weight https://www.vodafone. both in relation to BEPS and CbC reporting, as of different components between 2005 and com/content/dam/ sustainability/pdfs/ well as corporate lobbying, a topic discussed in 2018, with the share of total tax contribution vodafone_2017_tax.pdf Chapter 9 of this report. represented by corporate income tax falling
118 CORPORATE SUSTAINABILITY ACCOUNTING: WHAT CAN AND SHOULD CORPORATIONS BE DOING?
Table 7.2. Vodafone Group countries of operations (Top three countries by economic activity and by profits, millions of euros, 2016-2017)
Corporation Revenues Profits* Employees Assets Tax
Countries with most economic activity
Germany 10,619 -636 15,714 1,925 89
UK 7,536 -504 17,951 1,491 -89
India 6,847 -338 23,836 1,313 340
Countries with most profits
Luxembourg 187 1,450 325 17 5
South Africa 4,187 1,077 5,213 544 359
Italy 6,249 686 7,339 881 87
* Profits before tax Source: Derived from Faccio and Fitzgerald 2018:75-76, 88-89, based on Vodafone 2018.
significantly while several other components, on Business and Human Rights. As Brock and such as national insurance contributions, Pogge observe: increased significantly (PwC 2016, 2018). there are at least two powerful ways to argue for these responsibilities from normative perspectives that cut across Normative and regulatory drivers diverse ideological positions and so of tax-related sustainability should be compelling to a wide audience. accounting [These include] (i) [d]uties not to harm: 190 While corporate fiscal responsibility … Whatever the merits of taking actions moved rapidly A rapidly rising tide of regulatory pressure bodes to benefit or assist others, one should be up the ESG issue ladder, particularly well for the possibility that corporate taxation especially vigilant to avoid doing harm to since the OECD/ will become a key performance issue for others (2014:8). G20 BEPS initiative, many corporations assessing corporate sustainability performance. not least in relation to reinforcing deprivation were slow to take As RobecoSAM points out: and undermining poverty reduction; and action. A global survey In the context of the OECD’s initiatives (ii) [d]uties to respect human rights: conducted by Deloitte showed “that nearly against corporate base erosion and Inadequately funded governments are half of the respondent profit shifting (BEPS) the topic of tax also unable to secure and provide what organisations have no formal corporate is becoming increasingly material, and people need to realize their human tax governance is a perfect example of a topic with rights. … When tax abuse endangers the policy in place and that only a third of important implications for sustainability fulfillment of human rights, it is primarily those organisations broadly construed. In light of increasing the responsibility of states to effect the that have a formal written policy have awareness of companies’ roles and necessary revisions to their tax laws and these signed off by responsibilities towards society, shared tax practices. Yet, there are also obligations the Board. Anecdotal value creation and reputational and not to impede, and to assist, states in such evidence further suggests that those financial risks, transparent reporting on efforts, which fall upon accountants, organisations that the topic of taxation has become best lawyers, transnational organizations and have formal written 190 policies have not practice (2018b:16). citizens (2014:8). reviewed these policies since they were put in place and may have Normative pressures are building, particularly Companies adhering to the core principles of limited to no processes for corporations that explicitly identify with CSR should know that responsible behaviour in place for identifying, controlling or reporting concepts of CSR and sustainability, as well as means going beyond compliance with the law. tax risk” (Maclean and with the SDGs and the UN Guiding Principles An important aspect here relates to public Dixon 2015).
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disclosure of tax data. The OECD initiative governance move in a transformative direction. to promote CbC reporting, for example, is This is not only to address an important blind fairly comprehensive in terms of the type of spot within corporate sustainability accounting, information required but it does not insist on but also to shift from a “do less harm” approach public disclosure (Cobham et al. 2017; TUAC to one outlining what good performance might 2016). Adherence to CSR principles should also actually look like.194 mean to err on the side of social responsibility in contexts—as in tax strategy—where MNEs Christian Aid et al. (2015) highlight the need have options; for example, where the pursuit for: (i) realignment of the geography of a of one option may help poorer countries while corporation’s economic activities with that another may hinder development (Christian of its tax liabilities; (ii) transparency, with the Aid et al. 2015). Furthermore, it means being publication of a wide set of data associated with part of coalitions advocating for progressive tax rates, actual payments, accounting and taxable fiscal reform. profits, incentives, relations with tax authorities, advocacy and so forth; and (iii) the development 191 The Panama Papers implicated over In the wake of the global financial crisis in of an internally coherent responsible tax strategy 214,000 offshore 2008-2009, both political and public awareness and implementation procedure, as well as the entities and 500 banks (Sustainalytics 2017). of tax justice issues rose sharply. As inequality use of tax impact assessments to effectively gauge and poverty have moved up the ladder of developmental and other impacts. 192 According to Sustainalytics (2017:5): international development priorities, so too “these include DNB, have the expectations of citizens and policy According to Christian Aid et al., a “tax- the largest financial services company in makers about corporate tax behaviour. Several responsible company” is one that: Norway, Van Lanschot, controversies, such as the 2016 Panama Papers • is radically and proactively the Netherlands- 191 based private leak, catapulted money laundering and tax transparent about its business bank, and Svenska evasion into the media and political spotlight, structure and operations, its tax Handelsbanken. ... These firms are and provoked alarm about the lack of due affairs and tax decision-making; certainly not immune diligence within the financial sector. Research • assesses and publicly reports the fiscal, to money laundering by Sustainalytics revealed in 2017 that just 9 of economic and social impacts (positive or tax evasion controversies but 130 assessed banks and other financial firms (7 and negative) of its tax-related they tend to have percent) had high levels of risk preparedness decisions and practices in a manner advanced policies and programmes and associated with money laundering and tax that is accessible and comprehensive; lesser risk exposure. evasion (Sustainalytics 2017).192 and At the other end of the spectrum, 16 percent • takes steps—progressively, of examined firms (21 Various think tanks and research and advocacy measurably and in dialogue with its of 130) stand out as 193 poorly prepared. These organizations and networks have been stakeholders—to improve the impact companies include actively involved in exposing bad practices. of its tax behaviour on sustainable Wells Fargo, Credit Just as the naming and shaming associated development and on the human Suisse and Société Générale. Firms in this with the sweatshop and oil and chemical spill rights of employees, customers and category are typically scandals of the 1980s and 1990s propelled citizens in the places where it does distinguished by significant exposure to some corporations to improve disclosure business (Christian Aid et al. 2015). money laundering and and reporting of working conditions and the tax evasion risk and inadequate policies.” environment, tax scandals may well do the Regulatory pressures related to tax disclosure
193 same today in relation to fiscal responsibility are building. These include guidance by Particularly significant in this regard are the (see Box 7.1). intergovernmental bodies such as the OECD Tax Justice Network, and the G20; legally binding rules governing the Global Alliance for Tax Justice, and Oxfam. Beyond naming and shaming, civil society disclosure and reporting associated with 194 See, for example, organizations and networks are also advancing BEPS and CbC reporting, which have been Christian Aid et al. normative and technical proposals to inform introduced in recent years by the European 2015, ActionAid 2015, and numerous reports the process of policy reform. A number of Commission and various governments; and and briefs published by international NGOs have provided useful new guidance provided by standard-setting the Tax Justice Network guidance about the overall trends needed to entities like the GRI and PRI, as well as ratings (https://www.taxjustice. net/reports-2/). ensure that changes in corporate culture and tax and ranking agencies.
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Box 7.1. Recent tax investigations and rulings in the European Union
Amazon agreed to pay the French government EUR 200 million and to disclose all of its earnings.a In 2017, the European Commission ordered Luxembourg to collect EUR 250 million in back taxes from the company, citing a 2003 arrangement that, without any valid justification, permitted the firm to ascribe its profits to a holding company not required to pay taxes.b The EC stated in the tax ruling that Amazon EU had made royalty payments to Amazon Europe Holding Technologies, thereby significantly reducing the former’s taxable profit.c
Nike Group was charged in 2017 with using a subsidiary in Bermuda to hold its trademark logo for non-United States markets. This enabled the subsidiary to charge Nike’s headquarters in the Netherlands royalty fees, hence diverting billions in profits from tax payments in Europe.d The EU is currently investigating whether the Netherlands’ tax rulings between 2006 and 2015 led to an unfair reduction in the tax payments by Nike. At issue is the tax treatment of two Nike group companies based there.e The EU claims that since the Dutch government taxes the two smaller corporate units based “on a limited operating margin based on sales”, royalty payments look greater than typical market terms. Further, the EU argues that while the units get royalties, they have neither employees nor real economic activities.f
Starbucks caused a political and public uproar in 2017 when it revealed that its UK arm earned a GBP 162 million profit and paid GBP 4 million in tax—indicating a tax rate of just 2.8 percent when the corporate tax rate in the UK is 19 percent.g An EC investigation into a Dutch tax ruling extended to the company was under litigation in EU court at the time of writing.h In 2015, the EU ordered the firm to pay back EUR 30 million to the Irish government.
Apple Inc. reached a confidential settlement with the French government in 2019 to pay a decade’s worth of back taxes following a multiyear audit by the national tax authority.i In 2016, the EC stated that Ireland had given Apple undue tax benefits up to EUR 13 billion, which meant that the company paid an effective corporate tax rate of just 1 percent—compared to the normal corporate tax rate of 12.5 percentj—on its 2003 European profits, falling to 0.005 percent in 2014. This ruling resulted in a payment of EUR 14.3 billion (including interest) to the country.k
a See https://www.theguardian.com/technology/2019/feb/05/apple-to-pay-10-years-of-back-taxes-to-france b See https://www.forbes.com/sites/jwebb/2017/12/18/ikea-follows-apple-and-amazon-in-facing-a-eu-tax-avoidance- investigation/#1d7a0dadb268 c See http://europa.eu/rapid/press-release_IP-17-3701_en.htm d See https://www.cbc.ca/news/business/nike-tax-avoidance-tax-loophole-netherlands-bermuda-1.4380596 e http://europa.eu/rapid/press-release_IP-19-322_en.htm f See https://www.bloomberg.com/news/articles/2019-01-10/nike-s-dutch-tax-deals-probed-by-eu-in-latest-fiscal-crackdown g See https://www.express.co.uk/news/uk/1020131/starbucks-accused-corporation-tax-avoidance h See https://mnetax.com/eu-commission-publishes-decision-to-investigate-ikeas-dutch-tax-rulings-26896 i In March 2019, France released draft legislation on a 3 percent tax on the largest technology companies. The government believes this new levy would be a “step…towards a fairer and more efficient taxation for the 21st century.” The Economy Minister noted that “digital giants pay 14 percent less tax than small- and medium-sized European companies.” The legislation is referred to by the acronym GAFA, referring to tech giants Google, Apple, Facebook and Amazon. See https://www.theguardian.com/technology/2019/ feb/05/apple-to-pay-10-years-of-back-taxes-to-france. The proposed tax will be on digital advertising, personal data sales and other revenue generated by technology firms operating in France and earning over EUR 750 million (USD 840 million) per year globally. See https://www.france24.com/en/20190409-france-lawmakers-back-gafa-digital-tax-tech-giants. j See https://www.theguardian.com/business/2016/aug/30/apple-pay-back-taxes-eu-ruling-ireland-state-aid k http://europa.eu/rapid/press-release_IP-16-2923_en.htm
As normative and regulatory pressures grow, the media, political and activist group interest so too does the business case for responsible in corporate taxation [and] are more aware tax disclosure and performance. It centres on about reputational risk” (Deloitte 2018). risk management associated with reputation and liability, and building or strengthening the In short, growing public and governmental enabling environment for business through, concern with tax dodging is translating into for example, infrastructural development and an institutional environment that is promoting good governance practices. The annual surveys greater transparency in disclosure and reporting conducted by Deloitte to gauge corporate related to corporate taxation. Box 7.2 highlights reactions to BEPS show that 76 percent of examples of several recent tax-related standard- corporate respondents “are concerned about setting, ratings and certification initiatives.
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Box 7.2. Recent tax-related sustainability reporting initiatives
GRI: In 2017 the GRI Global Sustainability Standards Board (GSSB) appointed a multistakeholder Technical Committee to create the first worldwide standard for disclosures of taxes and payments to governments. Approved by the GSSB in September 2019, the standard will become a requirement for reporting purposes from January 2021. It contains four sets of indicators, three of which involve management approach disclosures, including (i) the organization’s approach to tax or tax strategy, including how it relates to its sustainable development strategy; (ii) tax governance, control, and risk management; and (iii) stakeholder engagement and management of concerns related to tax. The fourth set relates to CbC reporting, requiring disclosure of all tax jurisdictions where the organization operates and, for each jurisdiction, information on entities, activities, employment, revenues, assets, profit/loss before tax, corporate tax accrued, and “reasons for the difference between corporate income tax accrued on profit/loss and the tax due”.a
MSCI: From January 2017, the ratings agency MSCI announced it would significantly reduce the ESG ratings of companies that are embroiled in legal battles over tax issues, pay effective rates of tax that are much lower than their predicted rates based on revenues, or those with opaque tax structures.b It has set both qualitative and quantitative indicators to rank companies. Among the attributes of a top-ranking company is a tax gap of less than 5 percent, while a bottom-ranking company is one with an estimated tax gap of more than 25 percent.c
PRI: The PRI is currently working with global institutional investors to improve corporate tax transparency in the technology and health care industries, and recently published an investor guide to assessing and engaging in tax reporting.d This work builds on the PRI’s earlier tax-related reporting guidance that encouraged firms to provide quantitative data on key tax data points to back up policies, including by providing public CbC reporting data on revenue, pre-tax profits, employee numbers, corporate income tax paid as well as other taxes and “tangible assests that can help investors understand if taxes paid match business substance”. Reporting guidance provided by the PRI asks firms to report “the difference between the weighted average statutory tax rate based on the sales mix and the effective tax rate” and to explain this tax gap.e
SAMf (RobecoSAM): In 2018, the Corporate Sustainability Assessment’s specific Tax Strategy criterion was made completely public. The criterion is designed to identify potentially deleterious tax optimization in order to assess the sustainability of corporate tax policies and strategies. It is made up of three questions on firms’ tax strategy, tax reporting and, as of 2018, average effective tax rate. The new indicator assesses an organization’s average effective tax rate compared with other firms in the same industry group. The tax rate question assesses reported tax rates and average cash tax rates for the last two years to reveal differences between reported and expected tax rates, since significant discrepancies can suggest aggressive tax optimization and hence risk.g
Fair Tax Mark: Started in early 2014, the Fair Tax Markh (FTM) certification scheme enables “businesses that are paying tax in a responsible way to demonstrate this commitment to their customers, contractors and associates”. FTM standards and criteria cover company structure and ownership transparency; publicly available full accounts; an understanding of taxes paid and the reasons why; good practice tax policy; and public CbC reporting.
Extractive Industries Transparency Initiative (EITI): The 2016 EITI Standard “encourages countries to make use of existing reporting systems for EITI data collection and make the results transparent at source, rather than duplicating this exercise through EITI reporting”.i EITI Indicator 4.1 on “Comprehensive disclosure of taxes and revenues” stipulates that before reporting, the multistakeholder group must agree on material payments and revenues: “A description of each revenue stream, related materiality definition and thresholds should be disclosed”.j
The B Team Responsible Tax Principles were launched in 2018 to “offer a framework that details what good tax practice should look like and sets a new benchmark for businesses to work towards practicing. They cover key areas such as tax management strategy, interactions with authorities, and reporting.” Principle 7 on transparency states that signatories report annual information on their overall tax rate and the taxes paid at country level as well as information on financially material tax incentives such as tax holidays. Instead of committing to a specific reporting format, the Principles ask firms to provide “meaningful and understandable information on the taxes they pay in the countries where they operate and how this relates to their business model and activities around the world”.k They are endorsed by a founding group of companies including Allianz, BHP, A.P. Moller, Maersk, Natura Cosméticos, Repsol, Safaricom, Royal Dutch Shell Plc, Unilever and Vodafone Group Plc.
a See GRI 2019:10. GRI 207: Tax 2019. Accessed 10 December 2019. https://www.globalreporting.org/standards/gri-standards-download-center/ gri-207-tax-2019/?g=f90c409c-b5a8-494f-a6d9-a0a784f1c0be b https://www.ft.com/content/b12b120c-a80b-11e6-8b69-02899e8bd9d1 c Sayani 2017:11. d https://www.unpri.org/Uploads/t/r/l/PRI_Evaluating-and-engaging-on-corporate-tax-transparency_Investor-guide.pdf e See https://www.unpri.org/download?ac=4655. See also https://www.unpri.org/Uploads/w/c/g/pri_taxguidance2015_550023.pdf andhttps:// www.unpri.org/download?ac=1877 f RobecoSAM recently rebranded as SAM for its ESG-related work. g See https://www.robecosam.com/csa/insights/2018/assessing-the-sustainability-of-companies-tax-strategies.html h See www.fairtaxmark.net. i See https://eiti.org/news/2016-eiti-standard-from-reports-to-results j See https://eiti.org/document/eiti-standard-requirements-2016#r4-1 k See https://issuu.com/the-bteam/docs/bteam_responsible_tax_pagespreads/1?ff&e=15214291/58204607
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⚫ Concluding remarks 195 When reconciling or explaining the relationship between effective tax and profits, PRI The discussion regarding tax justice suggests Like the early history of other issue areas guidance notes that it is that the transformative challenge here involves associated with ESG reporting, disclosure important for multinationals to go beyond the usual practice of transitioning from aggressive tax strategies that related to corporate taxation runs the risk using the statutory rate of the home country and use instead promote tax dodging to progressive strategies of generating qualitative information and the weighted average statutory that ensure that corporations pay their fair narratives that may confuse as much as clarify, rate (PRI 2018a:16). share of taxes. This requires a closer alignment and which are not particularly user-friendly. 196 The guidance that accompanies the Responsible 100 Scorecard, of not only effective and statutory tax rates Furthermore, the information provided may organized by Profit Through but also the geographical distribution of profit make comparisons with other corporations Ethics Ltd, states that “large 199 and multinational corporations allocation and real economic activity. It also difficult. must…explain their use of tax requires a new approach to lobbying and the havens and low tax jurisdictions and how much profit is ways in which corporations and their business This chapter has identified a number of attributable to their use”. See: “Tracking changes in questions and trade associations attempt to influence quantitative indicators that regulators, standard and scorecards.” Accessed 30 fiscal policy—an issue discussed in Chapter 9. setters, ratings agencies, think tanks, and November 2019. https://www. responsible100.com/questions/diff/ Useful indicators suggested by various sources research and advocacy organizations have tax-transparency/3/4/ noted above include: adopted or promoted. Establishing thresholds 197 The ratio of pre-tax profits • effective tax as a percentage of pre-tax and targets to assess good or bad corporate to wages is to some extent indicative not only of the 195 profits by group, affiliate and country; tax performance over time is difficult not fairness of the worker share of economic returns over time • pre-tax profit as a percentage of only because of differing opinions as to what but also of where economic revenues (three-year average, given is legitimate in terms of commercial practice activity is misaligned with tax 200 liability. Zucman reports that possible wide fluctuations in annual and tax planning, but also because so much in tax haven affiliates the ratio of pre-tax profits to wages figures); depends on public policy and regulation. What (approximately 350 to 1) vastly profit attributed to recognized tax should corporations on their own be expected exceeds that of non-haven 196 affiliates (less than 50 to 1). havens and low tax jurisdictions; to do? See Zucman 2019.
• volume and percentage of group 198 See, for example, Responsible profits; At a general level, it seems clear that they 100 criteria for scoring “excellent”. Accessed 15 June • tax gap: effective tax rate as a percentage should be facilitating, rather than resisting, 2020. http://www.profitthrough of statutory tax rate; the reform agenda aiming for tax justice and ethics.com/about/faq/ • effective tax rate as a percentage of the enhanced disclosure and transparency. From 199 Critiquing aspects of the B Team Principle related to transparency industry rate; and the perspective of sustainability accounting (see Box 7.2), Cobham makes • the point that it not only “stops the ratio of pre-tax profits to wages by and transformative change, corporations can well short of requiring any affiliate.197 no longer be part and parcel of the aggressive kind of consistent reporting [but Principle 7 E in particular] and regressive international taxation agenda sidesteps the need for any kind The above analysis also suggests that the first alluded to above, where their practices of comparable data that could be used objectively to evaluate step must be transparent CbC reporting which undermine people-centred and equitable de one multinational against another—to ascertain whether (i) shows whether taxes paid reflect real business velopment. any or all of the other principles activity, and (ii) is publicly disclosed. In the case have actually given rise to any specific outcome in terms of of transnational corporations with operations Benchmarks could be used for certain tax behaviour. Or to evaluate any given multinational’s in multiple countries, a user-friendly form of indicators, for example, in relation to the tax performance over time. Or the disclosure coud be, for example, to present data gap where a range between, say, 0 to 5 percent performance of multinationals in one country against their on the effective tax rate in, say, the top three might be considered legitimate. An alternative performance in another” to five countries by revenues, employment and approach to benchmarking has been adopted (Cobham 2018). This type of comparison, he argues, is profits. by the Fair Tax Monitor when assessing possible with the current public reporting by extractive firms or government performance. In this case, they financial firms in the European While tax justice has recently climbed up the score the trend rather than set a fixed time- Union, as well as with the OECD 201 BEPS standards for aligning corporate sustainability issue ladder, assessment bound benchmark. Progressivity, then, would taxes paid with declared profits with “real economic activity” by of progress tends to rely on qualitative indicators be reflected in convergence of effective tax rates country. associated with policies and processes of with statutory and industry norms; regressivity/ 200 See Faccio and Fitzgerald corporate responsibility or ESG principles aggressivity would be reflected in divergence. For 2018:76, in relation to Vodafone. and due diligence, such as formulation corporations operating in multiple countries, 201 Make Tax Fair, Oxfam Novib, Tax and disclosure related to a company’s tax fairness would be reflected in trends indicating Justice Network-Africa 2015. https://maketaxfair.net/ftm/about- strategy and tax policy, board buy-in, training, a reduction of misalignment between taxes paid fair-tax-monitor/ monitoring and review, responsible lobbying and economic activity by country. and stakeholder engagement.198
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CHAPTER 8 Labour Rights
Of course, labour rights have long been recog nized in international norms of decent work established and promoted by organizations Introduction such as the ILO, and institutionalized in codes such as the Tripartite Declaration of Principles Any sustained progress towards distributive concerning Multinational Enterprises and justice depends crucially on reconfiguring power Social Policy (1977) and the OECD Guidelines relations in ways that (i) enhance the capacity for Multinational Enterprises (1976). More of employees to exert claims on management, recently, these rights have been reaffirmed and (ii) transform patterns of corporate political in numerous ESG standards and initiatives influence that currently foster a disabling policy referred to in Part 1 of this report (see Table environment for sustainable development. 1.1), including the SA8000 Standard, the This chapter addresses the former dimension, Fair Labor Association’s Workplace Code of examining labour rights related to collective Conduct, the UN Global Compact Principles, bargaining and freedom of association. Chapter the UN Guiding Principles on Business and 9 addresses corporate political influence. Human Rights, and ISO 26000.
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As also noted in Part 1, different strands of This chapter examines indicators that can social science analysis concerning the causes demonstrate whether corporations are of, and solutions to, the so-called wicked facilitating the necessary reconfiguration of problems of distributive justice, inequality power relations within corporate governance and precarious employment in the 21st century regimes through actions that strengthen core place considerable store in the role of labour labour rights. It outlines several concerns rights and workplace democracy to improve the related to underreporting on labour rights and human condition.202 inconsistency in the type of data disclosed, and goes on to emphasize the need for transnational Yet despite this normative and analytical backing corporations to provide disaggregated data that for labour rights, real-world trends have tended reveal variations in labour rights by country to move in the opposite direction, notably in where major affiliates and suppliers are located, the context of global and technological changes rather than a general group-wide figure. This in labour markets (Visser 2019), reinforced by in turn requires transparency regarding the public policy agendas and corporate strategies location of suppliers. The chapter ends by favouring labour market flexibilization and calling attention to what are often blind spots outsourcing. The two conventional indicators within reporting that are key for assessing associated with core labour rights—namely, corporate sustainability performance in trade union density (percentage of workers relation to labour standards and labour rights. belonging to a trade union) and collective They include the scale of reliance on temporary bargaining coverage (percentage of workers labour and subcontracting via labour brokers, covered by collective bargaining agreements)— and the extent to which a company’s pricing and reveal a declining trend over several decades. procurement policy or practices contradict—or Despite the wide recognition of freedom of align with—the sustainability objectives of both 202 See Piketty 2014; Stiglitz 2018; Reich association and collective bargaining within lead corporations and suppliers. 2007; Jackson 2009; mainstream ESG discourse and reporting Standing 2011. guidelines, this trend shows no sign of reversal. 203 Beyond the micro Indeed, as Visser et al. note: level of the enterprise Sustainability disclosure as or plant, collective collective bargaining has come under if labour rights mattered bargaining negotiations pressure in many countries since the between independent unions and employers, financial crisis of 2008. This followed a A critical first step within sustainability and their respective longer-term decline in union membership accounting is to reassert the importance of associations, can also take place via rates… Data on changes in bargaining labour rights by correcting a bias that often forms of coordinated coverage rates from 2008 to 2013 for 48 characterizes disclosure related to labour bargaining at national and industry (or sector- countries shows that, on average, there standards. Both public policy and corporate wide) levels. Each has been a drop in bargaining coverage policy tend to focus more on management type of bargaining of 4.6 percent, compared with an systems and performance related to social has its advantages and disadvantages, average decline in union density in the protection or working conditions, than on but industry-wide same period and for the same group of the realization of labour rights. Referring to or economy-wide bargaining tends to countries of 2.3 percent (2017:1). public policies, Bosch and Lehndorff (citing be more inclusive of a Sengenberger 1994) point to the emphasis on wider range of workers. Under enterprise- There is ample room for corporations to act “protective” versus “participative” standards level bargaining, within their sphere of influence to alter the that promote workers’ empowerment within skilled workers often benefit more than current trajectory of labour rights erosion. governance systems via collective bargaining, unskilled workers While bargaining at the level of enterprises freedom of association, and giving workers (Visser et al. 2017). It is only one of several levels where collective a voice and vote in decision-making forums has also been found that a hybrid system, bargaining occurs, corporations have the such as pay committees and company boards: involving “vertical chance to modify this trajectory of change, most “Participative standards confer consultation or coordination, or ‘articulation’, between directly when collective bargaining occurs at the co-determination rights on employees or their levels is critical for sectoral level as well—in particular when the representatives and organisations” (2017:37). flexibility, sustainability and performance” corporation in question is a dominant industry Exercising these rights is key to addressing (Koukiadaki and player—and nationally, through participation those aspects of inequality associated with both Grimshaw 2016:26). and influence in employers’ associations.203 discrimination and income distribution.204 204 See also ILO 2017a.
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Similarly, in their assessment of the impact of the • “[O]nly 10% of companies report on Ethical Trading Initiative’s (ETI) code of labour the living wage, and very few disclose practice in worksites in India, South Africa and country-by-country information on Viet Nam, Barrientos and Smith (2012) observe region-sensitive issues such equal 205 Involving civil society some progress related to “outcome standards” opportunities (6%) and freedom of organizations and such as health and safety, child labour, payment association (10%), even though a experts, the Alliance for Corporate Transparency of minimum wages, working hours and the majority of companies included in is a three-year research social wage (for example, health insurance the research have operations outside project that aims to and pensions). Far less had been achieved in Europe (80%). provide guidance to companies and regulators relation to “process rights” associated with the • “While 80% of companies provide via an assessment of empowerment of workers to exert claims on information on anti-discrimination whether the 1,000 largest companies in management through collective bargaining and or equal opportunities policies, only the European Union are freedom of association. 36% report on the effects of these providing the type of information required by policies” (Alliance for Corporate the EU Directive on non- Additionally, where workplace scandals and Transparency 2019).206 financial reporting (see Part 1 and Annex 4). disasters have forced corporations to ratchet up their sustainability performance, the focus of In an assessment of how 119 companies in 206See https://alliancefor 207 corporatetransparency.org/ attention is often on the immediate imperative three high-risk sectors are responding to news/companies-failing.html of “fixing” occupational health and safety norms and regulations aimed at eliminating the 207 These are information (OHS) problems rather than a key structural use of forced labour in their supply chains, the and communications 208 technology (ICT), food and condition that underpins lack of safety—namely KnowTheChain initiative notes that of seven beverage, and apparel weak or non-existent unionization and collective actionable areas,209 the weakest responses related and footwear. bargaining. This narrow focus has been evident, to recruitment practices and “worker voice”:210 208 KnowTheChain is a for example, in the follow-up to the Rana Plaza “Yet”, the study notes, “these are the two areas partnership of Humanity United, the Business & factory collapse in Bangladesh that killed and assessed by the benchmark that have the most Human Rights Resource injured well over 3,000 people in 2013. While direct impact on workers’ lives”. Indeed, only Centre, Sustainalytics, and Verité aimed at many companies and investors responded 13 percent of the companies disclosed engaging benchmarking progress, with necessary interventions, albeit slowly, the with global or local trade unions to support promoting transparency and providing guidance focus was very much on protective measures freedom of association in their supply chains related to forced labour associated with OHS. This prompted a group of (KnowTheChain 2019:15). abuses within supply more than 200 investors who are signatories to chains. See https:// knowthechain.org/about-us/ the Principles for Responsible Investment (PRI) 209 These are: to recommend “broaden[ing] the current accord The importance of disaggregated (i) commitment and to include a focus on freedom of association and time series data governance; (ii) traceability and risk and collective bargaining and integrat[ing] this assessment; into the complaints mechanism process and While reporting frameworks such as the (iii) purchasing practices; additional parts of the supply chain where GRI and SASB (see Annex 8) generally call (iv) recruitment; (v) worker voice; similar risks exist” (PRI 2017:7). on companies to disclose the percentage of (vi) monitoring; and employees covered by collective bargaining (vii) remedy. Recent research by the Alliance for Corporate agreements, few appear to do so. Poor disclosure 210 “Worker voice” is 205 understood in terms of Transparency points to concerns within related to labour rights is reflected not only “enabling workers to corporate sustainability reporting related not in organization-wide percentage metrics, but understand and fully exercise their rights only to labour rights, but also to other key also in (i) lack of data disaggregated by region [which] is critical for performance issues and indicators addressed in or country where a corporation operates, (ii) vulnerable workers such this report. Among 105 large corporations in absence of supply chain mapping, and (iii) as migrant workers, who may not be familiar with 10 EU countries, the study notes that: the presentation of annual data snapshots as their rights and unable • “Very few … include outsourced opposed to time-series data. to exercise them. In practice, companies workers in their perspective: only can improve labor rights 25% inform about how many there Even corporations that might be expected practices by supporting an enabling environment are in the workforce, but less than to be leaders in reporting on labour rights for independent unions 5% include them in their reporting show a very mixed record. This reporting and worker associations” (KnowTheChain on equal opportunities, collective weakness emerges from an examination 2019:15). bargaining or salaries. of the sustainability or integrated annual
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reports of 10 companies211 that (i) report “in Table 8.1. Total and Electrolux: accordance” with the GRI framework, and (ii) Collective bargaining coverage have committed to supporting labour rights by signing international framework agreements Total* 2014 2015 2016 2017 2018 (IFAs) with global union federations such as % of companies IndustriALL, UNI, IBFWW and IUF.212 with employee 75.6 76.9 78.5 78.9 80.5 representation
The results of this examination not only % of employees covered by reveal limitations regarding the usefulness 67.8 65.5 68.9 73.1 71.5 of disclosure and reporting on collective collective agreements bargaining coverage, but also underscore considerable inconsistency in what is reported Electrolux** 2013 2014 2015 2016 2017 and the metrics and formats used. Of the % of employees covered by companies reviewed, only two—Electrolux and 63 63 59 57 58 Total—provided time series data (as opposed collective bargaining to an annual snapshot) that make it easy to identify trends and assess progress over several 211 The companies include * Total’s integrated report provides data for three Electrolux AB (Swedish years (see Table 8.1). In one case we see that consecutive years (Total 2019:188). It’s easily accessible home appliance the trend was positive; in the other, negative, “Social Indicators” database covers five years. Accessed manufacturer), Total 20 December 2019. https://www.sustainable- S.A. (French energy but the main point for this discussion is that performance.total.com/en/social-indicators producer), PUMA users of the data can at least gauge the trend. (German sportswear ** Electrolux. 2018. For the Better: Electrolux manufacturer), Sustainability Report 2017:93. Accessed 20 December Inditex (Spanish PUMA (2017) provided an annual snapshot, 2019. https://www.electroluxgroup.com/en/electrolux- apparel retailer), reporting that “the employment of over 30 sustainability-report-2017-24501/ Daimler (German auto manufacturer), percent of our employees was covered by a Petrobras (Brazilian collective bargaining agreement.” Usefully, petroleum company), H&M (Swedish however, it also provided a breakdown by in Germany: “Our employees have the right apparel company), countries and regions where selected suppliers to organize themselves in labor unions. We Danone (French 213 food manufacturer), are located. Recognizing the need to move also ensure this right in countries in which the Ford Motor Company beyond “‘yes/no’-type audit questions”, in 2015 freedom of association is not protected. More (United States auto manufacturer) and the company began to systematically collect data than 95 percent of our employees in Germany Skanska AB (Swedish on selected social key performance indicators and more than 80 percent of our employees construction firm). that “will help us and our suppliers to track worldwide are covered by collective bargaining 212 For more on IFAs, performance improvements over time and also agreements”.215 see ILO 2018b and Hammer 2012. benchmark suppliers among themselves.” In 213 PUMA. 2017. 2016, reporting extended beyond China to all Recent Petrobras reports note that all of its Momentum: 2016 major sourcing countries (see Table 8.2). employees are covered by collective bargaining Annual Report. agreements. This appears to refer, however, only Accessed 20 December 2019. Three of the 10 companies met the basic GRI to Brazil where the company is headquartered. http://report2016. guidance, but offered no time series data or Previous reports (such as those referring to puma-annual-report.com/ en/company-overview/ much, if anything, by way of data disaggregated activities in 2006 and 2011) noted collective sustainability/ by country or region: bargaining coverage beyond Brazil either with 214 Inditex. 2019. Inditex one broad figure (27 percent in 2011) or with Annual Report 2018 (p.81). Accessed 20 Inditex notes: “Regarding collective bargaining reference to specific countries. The 2006 report, December 2019. by country, the percentage of employees covered for example, notes coverage of 41 percent in https://static.inditex.com/ by local agreements in Europe is about 70%. Argentina, Libya 26 percent and Bolivia zero annual_report_2018/pdfs/ en/Inditex%20Annual%20 Due to opening new markets (especially in Asia) given that unionization was just beginning. Report%202018.pdf this percentage with regard to local collective 215 Daimler. 2017. bargaining agreements is slightly lowered to Four other companies did not report the GRI Sustainability Report 214 2016 (p.76). Accessed 60% at a global level.” indicator for collective bargaining coverage: 20 December 2019. https://www.daimler.com/ Daimler reported relatively high rates of H&M provided considerable information documents/sustainability/ other/daimler-nachhaltig collective bargaining coverage worldwide and regarding labour rights policy, projects, keitsbericht-2016-de.pdf
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education, training, grievances procedures and Table 8.2. PUMA: Supply chain workers so forth, but not the recommended quantitative covered by a collective bargaining agreement data. As regards whether labour rights goals Latin America were being met, goal attainment was generally (average of 9 suppliers) 216 described as “on track”. Argentina 97
Danone provided no quantitative collective Brazil 100 bargaining coverage data, apart from the El Salvador 0 percentage of entities (79 percent) having Mexico 44 216 For example: “Our goal is for all of our strategic implemented regular collective labour agree South Asia supplier factories to ment negotiations with social partners.217 (average of 14 suppliers) have democratically elected and Bangladesh 0 functional workplace Ford Motor Company provided considerable India 0 representation in quantitative data on such aspects as en place by 2018 at the Pakistan 0 latest” (H&M 2016. vironmental performance and gender equal Conscious Actions: ity, but information regarding freedom of East and Southeast Asia Sustainability Report (average of 39 suppliers) 2015:54). Accessed association and collective bargaining was absent 15 December 2019. in both data and narrative reporting, apart China 80 https://about.hm.com/ content/dam/hmgroup/ from restating the principle that “we respect Cambodia 36 groupsite/documents/ employees’ right to freedom of association and Indonesia 67 masterlanguage/CSR/ to collectively bargain”.218 reports/2015%20 Malaysia 0 Sustainability%20report/ HM_SustainabilityReport_ Skanska did not reference collective bargain Viet Nam 92 2015_final_FullReport.pdf Europe, Middle East, Africa (EMEA) 217 ing, noting only the UN Global Compact Danone. 2019. (average of 8 suppliers) Danone Registration Principal that businesses should uphold Document 2018, freedom of association and the right to collec Georgia 0 Annual Financial Report (p.199). tive bargaining, and that it does not report on Madagascar 0 Accessed 20 June collective bargaining coverage at the Group Mauritius 43 2020. https://www. 219 danone.com/content/ level. Turkey 11 dam/danone-corp/ danone-com/investors/ Source: PUMA 2016 en-all-publications/2018/ registrationdocuments/ Country-by-country and supply Danone%20-%20 chain reporting Registration%20 Document%202018.pdf
218 The challenge related to reporting on core And as noted in PUMA’s narrative reporting, Ford. 2020. Our Future Is in Motion: labour rights involves not only compliance this assessment has drawn the company’s What Drives Us? with the basic indicators recommended by attention to “a clear need to promote collective Sustainability Report 2020 (p.23). Accessed standard setters, but also greater transparency bargaining on the Indian subcontinent and 15 June 2020. https:// regarding performance along the supply chain. some additional countries” (PUMA 2016). corporate.ford.com/ microsites/sustainability- Presenting one aggregate global figure for report-2020/assets/files/ trade union density and collective bargaining Public disclosure of suppliers sr20.pdf coverage may mask the wide variation in labour Disasters, such as the Rana Plaza factory 219 Skanska. 2019. Annual and Sustainability rights that can exist by region and country. collapse in Bangladesh, have served to reveal Report 2018. This points to the need for CbC reporting, situations where brands do not even know Accessed 20 June at least for countries where key suppliers are where their products are being produced. Such 2020. https://group. skanska.com/499a5b/ located. high profile supply chain events and exposés siteassets/investors/ have led corporations in sectors such as ICT, reports-publications/ annual-reports/2018/ Data provided by PUMA from its first global toys, apparel, footwear, food and supermarkets annual-and-sustainability- assessment of social key performance indicators to pay far greater attention to labour standards report-2018.pdf in selected suppliers reveal significant variations and environmental conditions in their supply 220 See ECCJ 2018; Marshall et al. 2016; in collective bargaining coverage by country (see chains. Regulatory pressures have also built Mares 2018. Table 8.2). up considerably in recent years.220 Several laws
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have come into effect requiring or promoting Figure 8.1. Supply chain mapping in the United States fashion industry (%) supply chain disclosure in particular sectors, such as “conflict minerals” (see the 2010 Dodd- 100% Frank Wall Street Reform and Consumer Protection Act), on key performance issues such as forced labour and human trafficking (see 75% the United Kingdom’s 2015 Modern Slavery Act, and the 2010 California Transparency 50% in Supply Chains Act ), or in relation to ESG performance more generally (see the 2014 EU 25% Directive on Non-Financial Reporting).
0% But supply chain mapping often takes place All (includes Brands Retailers behind closed doors. Large corporations are importers) increasingly aware of the need to identify risks Tier I: Factory where final product is assembled within their supply chains but generally prefer to Tier II: Subcontractors or major component suppliers Tier III: Yarn spinners, finding and trimming suppliers keep such information to themselves. This is the Tier IV: Raw material suppliers such as cotton, chemicals case even in industries, such as fashion, that are under considerable pressure from consumers Source: Based on Raghuwanshi 2019. Reproduced with permission. and NGOs as regards transparency and accountability. In April 2019, H&M claimed to have become the first global fashion company While emerging laws do not mandate public to provide detailed supply chain information disclosure of suppliers, this approach is now for its garments and home interior products urged by various standard-setting, certification sold online. Its “transparency layer” initiative and ratings entities, as well as professional reveals country of production, supplier names, services firms. An EY and UN Global Compact factory names and addresses, the number of study on building responsible supply chains, for factory workers, as well as information about example, emphasizes the need for transparency materials used in manufacturing.221 and traceability beyond Tier I suppliers, and considers this as one of the defining features of There is growing recognition that public companies that are leaders in operationalizing disclosure of basic information related to name, sustainability in the supply chain (EY 2016). location and numbers of employees in supplier factories is a first step. It facilitates due diligence The Fashion Transparency Index found that on the part of brands or lead companies in 70 (35 percent) of the 200 brands studied global value chains, and enables trade unions were publishing first-tier supplier lists, and 38 and NGOs to monitor performance and work (19 percent) provided lists of their processing with global companies to deal with complaints. facilities. A new development, involving 10 brands (5 percent), related to transparency Various standard setters and corporations are regarding raw material suppliers. Brands that finally following in the footsteps of colleges and stood out in relation to traceability included universities in the United States, which over 20 Reebok, adidas, G-Star Raw, C&A and ASOS years ago began a movement that required their (with a 51 to 60 percent rating), Nike, Jordan, apparel licensees to disclose the names and Converse, Wrangler, Vans, Timberland, The location of supplier factories. Contemporary North Face (61 to 70 percent), with top spots stakeholder and regulatory pressures are going to Esprit (73 percent) and Patagonia (78 obliging some corporations to opt for public percent) (Fashion Revolution 2019). 221 See Bizcommunity. disclosure. Certain sectors such as electronics “H&M introduces (for example Apple, Dell, HP), toys (such as As noted in Figure 8.1, while most United product transparency for all garments sold Lego) and, notably, apparel and footwear States buyers in the fashion industry map top- online”. 25 April 2019. discussed below, have taken the lead due to tier factories and suppliers, this is not the case Accessed 15 June 2020. https://www.bizcommunity. pressure from trade unions, NGOs, consumers for suppliers of components (Tier III) and raw com/Article/196/462/ and investors. materials (Tier IV) (Raghuwanshi 2019). 190114.html
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While the Fashion Transparency Index has and their unions a stronger leverage, crucial noted some progress in the depth and breadth for a timely solution when resolving conflicts, of transparency since it was first published in whether it be refusal to recognize the union, 2016, very few brands disclose information or unlawful sackings for demanding their related to labour rights. While 77 percent rights. It also provides the possibility to create of brands publish a policy on freedom of a link from the worker back to the customer association and collective bargaining in their and possibly media to bring attention to their supplier code of conduct, just 9 percent disclose issues” (Fashion Revolution 2019:11). the number of workers in the supply chain covered by collective bargaining agreements. Subcontracting via labour brokers Just 4 percent disclose the number of supplier The disclosure challenge associated with labour facilities with independent democratically rights within the supply chain does not end here. elected trade unions. While attention to labour rights issues in the supply chain is growing, it is mainly limited to Some multistakeholder standard setters have fixed-contract employees engaged directly by the recently placed far more emphasis on public enterprise in question. Subcontracted labour disclosure of factory information. In early 2019, provided through brokers is often ignored in the Board of the Fair Labor Association (FLA) this process of ratcheting up disclosure related voted to oblige its 59 affiliated companies222 in to labour rights and supply chain mapping. the garment industry to publish factory lists. While the scope of disclosure (in terms of Subcontracting constitutes one of the type of information and the different tiers of key structural drivers underpinning the suppliers) remains to be decided, trade union deterioration of labour rights. Shamir organizations and NGOs that are members (2016:229) sums up the concern as follows: of the Transparency Pledge Coalition223 will Subcontracting—the practice of using monitor implementation. intermediaries to contract workers, whether through temp agencies, The Ethical Trading Initiative224 has also manpower agencies, franchise, or emphasized the need for public disclosure other multilayered contracting—is an 222 See https://www.fairlabor. not only in garments but also other industries increasingly popular pattern of employ org/affiliates/participating- companies?page=3 and sectors such as food, agriculture, fishing ment worldwide. Whether justified 223 Members include: and supermarkets where its approximately from a business perspective or not, Clean Clothes 100 affiliated companies operate. Recognizing subcontracting has dire implications Campaign, Human Rights Watch, that considerable change was needed in its for workers’ rights: it insulates the IndustriALL, approach to transparency, in 2017 the ETI laid beneficiary of their labor from direct International Corporate out a comprehensive business case for public legal obligations to the workers’ wages Accountability Roundtable, disclosure and positioned transparency as a and working conditions and drastically International Labor priority element of its strategy to 2020 (ETI reduces their ability to effectively Rights Forum, International Trade 2017). unionize. Union Confederation, Maquila Solidarity Network, UNI Global From a sustainability perspective, public Yet disclosure on this aspect is minimal. If Union, and Worker disclosure of such information is critical. Not corporations are to facilitate the “revitalization Rights Consortium. only do various standard setters increasingly of collective representation” and, more 224 The ETI promotes demand such reporting, but withholding such specifically, the transition to formalization human rights due diligence information undermines some of the most and inclusion of informal economy workers and collaborative important drivers of transformative change, called for by the Global Commission on the multistakeholder best practice learning, and namely monitoring, advocacy, dialogue and Future of Work (2019:41), then it is crucial for assesses “continuous bargaining involving NGOs, trade unions and them to be transparent about employment in improvement” among member civil society networks. As noted by the Assistant supply chains and the use of subcontracted companies according Secretary General of the IndustriALL Global labour. As illustrated by the case of Unilever, to its internationally recognized Base Code Union, Jenny Holdcroft, “knowing the names this is an emerging issue within sustainability of labour standards. of major buyers from factories gives workers accounting (see Box 8.1).
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This discussion suggests that if corporate sustainability performance metrics related to labour rights and decent work are to be meaningful, the focus of attention needs to broaden beyond employees on fixed-term contracts issued by headquarters and affiliates. Sustainability accounting also requires public disclosure of a lead company’s suppliers, and metrics to assess the trend regarding (i) outsourcing to formal enterprises, and (ii) the use of subcontracted labour.
In lieu of hard data related to outsourcing and subcontracting, the potential scale of the issue can be assessed by mapping and contrasting trends in company growth and fixed-term employment. Rising turnover and profits along with falling employment may signal undesirable practices from a sustainability and decent
Box 8.1. Ratcheting up labour rights in Unilever
Unilever has come under considerable scrutiny from NGOs and trade unions for its use of subcontracted labour.* A study conducted by Oxfam on labour rights in Unilever’s supply chain in Viet Nam found that: Just over half of the workers in the factory (748 out of 1,385) were sub-contracted to a labour provider, Thang Loi, rather than directly employed. These workers had lower wages and benefits than [Unilever Viet Nam] employees; their average basic wages were still comfortably in excess of the legal minimum wage and the international poverty line, but less than half the [Asia Floor Wage] benchmark and Oxfam’s estimate of workers’ expenses (VND 5.4 million). Some workers complained of unfair treatment and repeat temporary contracts ... Thirty-two of the 48 suppliers surveyed by phone said they use temporary or sub-contracted workers (Wilshaw 2013:11).
The company had implemented, however, a Contingent Labour Reduction Roadmap to reduce the ratio of subcontracted to directly employed workers, where needed. And as part of Unilever’s response to the findings of the study, then CEO Paul Polman noted the need to mitigate the ‘casualization’ of labour within our workforce wherever possible. We are taking steps to review our use of temporary workers to ensure that wherever possible we can offer permanent employment opportunities for skilled and semiskilled workers in our supply chain operations. As a result, over the last three years Unilever has already reduced its use of contingent labour in Asia and Africa by more than 40% (Wilshaw 2013:95).
This approach led to an agreement between Unilever and the global union federations IndustriALL and IUF, signed in May 2019, to limit the use of temporary workers and protect permanent jobs in over 300 Unilever factories in 69 countries, whether employed directly by Unilever or through a third-party provider. The Joint Commitment on Sustainable Employment in Unilever Manufacturing:** • sets out principles and procedures to prevent potential harm to fundamental workers’ rights caused by non-permanent employment; • restricts the hiring of temporary workers to short-term and non-recurring tasks in Unilever factories, and prevents temporary contracts being used to avoid regular employment; • informs temporary workers of their work schedules with sufficient notice, and prohibits them being retained on call without pay; • requires temporary workers to be given priority when filling permanent positions; and • promotes: equal pay for equal work; a safe work environment and safety training; and the right of workers to freely form or join a union of their choice without fear of intimidation or harassment.
* See, for example, van der Wal 2011, Wilshaw 2013 and IUF 2013. ** See text of the agreement: http://www.industriall-union.org/unilever-and-global-unions-sign-agreement-to-restrict-temporary-jobs
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work perspective. An exercise conducted for the possibility of segmented social up this project found that since the turn of the grading and the wider use of informal millennium in 2000, Unilever’s turnover (in work in GSCs (Lee 2016:22). euros) had increased by roughly 10 percent, and net profits by approximately 500 percent, Any discussion of the sustainability while the number of employees had declined performance of large corporations, therefore, roughly by half.225 In the 10 years from 2009 to needs to go hand in hand with that of 2018, turnover increased 28 percent and profits responsible sourcing and purchasing practices increased 150 percent while employment (Blasi and Bair 2019; Merk 2005). Concerns declined 3 percent. related to responsible sourcing have escalated in recent years in part because of in-depth While increased labour productivity (increasing studies on the social and environmental revenues or profits per unit of labour) is upgrading of value chains226 and surveys generally considered positive from the to better understand the situation and per perspective of efficiency, its implications for spectives of suppliers. Important in this regard sustainable development are less clear. From a is the work of the ILO (2017b) and the Better sustainability perspective, rapidly falling rates of Buying initiative (2018). full-time employees contracted directly by the corporation could signal a red flag that merits The central issue relates to the disconnect further inquiry. Furthermore, such a decline between commercial and sustainability policy appears to run counter to guidance by standard within corporate strategy—more specifically, setters such as the Ethical Trading Initiative and the failure of lead companies to recognize that SA8000 that call for a commitment to regular commercial policies and practices can place or stable employment (Wilshaw et al. 2013). suppliers in a straitjacket, in terms of their ability to improve labour standards. Suppliers are often subject to pressures related to (i) Responsible purchasing practices aggressive pricing that may constrict wages and benefits; (ii) product development and Beyond the potential for further outsourcing short production lead times, which can result and subcontracting in contexts where labour in excessive and unplanned overtime; and (iii) rights, working conditions and wages are short-term or insecure contractual relationships improved for some workers, there is another between affiliates and suppliers. Summing up red flag or contradiction that needs to be the findings of its Global Survey of purchasing highlighted. Power imbalances within global practices and working conditions in global value chains, as well as corporate culture and supply chains, the ILO notes: incentives associated with short-termism and We saw, for instance, that agreeing on the single bottom line, can easily result in prices that are below production costs a situation where suppliers find themselves puts the suppliers in a difficult situation incurring additional costs as a result of so- with regard to paying wages, improving called sustainability measures adopted by working conditions, and use of only lead companies (Blasi and Bair 2019) and/or declared work, and can thus even put purchasing practices that result in short lead them at high risk of bankruptcy. A low times or unplanned changes in orders. As Lee willingness—and in any case after weeks 225 Actual data for the notes: of delay—to incorporate recent increases 2000-2017 period global buyers’ supply chain strategies, in the legal minimum wage into the derived from Unilever Annual Reports: especially sourcing and purchasing prices agreed with their suppliers may turnover (+) 11.75 practices, have drawn considerable also reduce the possible margins for percent; net profit attention as the underlying causes of suppliers, and thus also impact wages and (+) 487 percent; employment (-) 44 many labour violations in supplier working conditions, and extend informal percent. factories, and the differentiation of work. Similarly, … insufficient lead times 226 See, for example, the labour conditions between regular and and inaccurate technical specifications Capturing the Gains programme: http://www. temporary workers. Post-crisis [global provided by the brands directly lead to capturingthegains.org/ supply chains (GSCs)] have intensified lower wages and an increased number of
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overtime hours. In other cases, suppliers existence of policies and clearly defined may have recourse to outsourcing, with responsibilities, training, ongoing dialogue wages and working conditions also fur between purchasing and labour compliance ther deteriorating along this extended personnel, grievance mechanisms, monitoring, chain of sub-contractors (ILO 2017b:20). remediation, and so forth. Also important is the restructuring of bonus and incentive systems to The same study found that the proportion of better acknowledge and reward sustainability temporary workers hired by suppliers increases performance. Such measures aim to align significantly when they are more dependent on commercial practice with sustainability policy one buyer, as well as in contexts of aggressive and goals, or as adidas notes, ensure that “[a]ll (below cost) pricing and increased outsourcing relevant employees engaged in development, (ILO 2017b). planning, costing, sourcing, and purchasing activities ... conduct their work consistently with These are the kinds of issues that adidas the principles of this policy” (adidas 2017:3). addresses in its responsible purchasing policy: Responsible sourcing and purchasing The assessment of responsible sourcing practices practices … shall support decision does not lend itself easily to quantitative making and processes that are aligned performance indicators. For this reason, with: • Contractual and financial disclosure related to the due diligence or process terms that do not adversely impact dimension is important. But given the ease compliance with the adidas Workplace with which evidence regarding due diligence Standards, including the safeguarding can be fudged, it is important to emphasize two of legally mandated wages, benefits & indicators that directly address the problematic compensation; • Product development, issues outlined in this chapter. These are, first, order placement/purchasing, and the capacity of workers to contest conditions production lead times that reduce the in value chains and shape their upgrading, risk of excessive overtime, unauthorized not only through individualized complaints subcontracting, or other negative supply mechanisms but also through strengthening chain impacts; and • A commitment to labour rights that facilitate collective action and long term partnerships with suppliers, bargaining.227 And second, the levels of financial which recognise those suppliers support and incentives provided to suppliers in delivering sustainable compliance, their efforts to upgrade labour standards. The in accordance with the Workplace Global Survey of suppliers conducted by the Standards, a track record in reducing ILO and the joint Ethical Trading Initiatives environmental impacts and maintaining (ETIs) in 2016 found that: and achieving product safety standards nearly half of the suppliers (49 percent) (adidas 2017). that are expected to follow a code of conduct receive no help from their As the ILO study also notes, while buyers buyers in achieving the demanded social may pressure suppliers to improve working standards. The remaining 51 percent were conditions, “we also found that buyers do found to receive some assistance such as not always accompany such standards with staff training or a joint identification of support and financial assistance, adding further breaches. Only 17 percent, however, were pressure—on top of the purchasing practices found to enjoy shared audit costs and mentioned above—to the suppliers’ margins” even less (9 percent) to receive financial (2017b:20). assistance (ILO 2017b:10).
As is evident in the FLA Principle concerning Of the various benchmarks identified by responsible sourcing, disclosure related to the FLA to gauge performance related to the alignment of commercial practices with responsible sourcing, one stands out in this workplace standards is heavily centred on regard: the percentage of suppliers and/or 227 Regarding women workers in global value efforts associated with due diligence and facilities receiving incentives. Knowing the types chains, see Barrientos management systems, in other words the and amounts involved would also be useful. 2019.
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⚫ Concluding remarks
To sum up, the above analysis of disclosure should be unionized and covered by collective and reporting on labour rights underscores bargaining. In practice, restrictive labour laws the following actions companies can take in various countries and jurisdictions prevent to ratchet up sustainability disclosure and unionization, making such a target impossible reporting. at the enterprise level. The same does not apply, however, to collective bargaining given Disclosure related to labour standards the possibilities for companies operating in remains heavily skewed towards basic working restrictive legal settings to enter into alternative conditions. It is important to correct the modes of social dialogue that, to some extent at inherent bias within disclosure and action least, involve a degree of collective bargaining. by placing far greater emphasis on the labour This observation also suggests that corporate rights (freedom of association and collective responsibility should go beyond enterprise- bargaining) component of standards. But level efforts to facilitate collective bargaining even companies that emphasize labour rights and extend to forms of corporate lobbying and in their social responsibility agenda often fail political influence that promote rather than to comply with the minimum guidance of resist progressive labour market policy reforms. the GRI and other standard setters regarding quantitative data on collective bargaining It is important to contextualize data on labour coverage. rights. Positive trends in freedom of association and collective bargaining coverage among full- Annual data snapshots related to collective time employees may mask regressive trends bargaining coverage can do more to obfuscate related to a significant decline in permanent than clarify. It is important that metrics or fixed-term employment and/or increased facilitate trend analysis via time series data reliance on subcontracted labour, which is spanning, say, a minimum of five years, as often associated with weak labour rights. It is noted in the case of Total and Electrolux. It useful, therefore, to (i) provide time-series data is also crucial to provide CbC data to reflect on permanent and fixed-term employment and detect variations in countries where key and to compare it with that on revenues and affiliates and suppliers operate, as noted in profits, and (ii) disclose data on the percentage the case of PUMA. As regards suppliers, it is of the workforce of affiliates employed part important to follow the lead of corporations time or subcontracted. that are disclosing information beyond Tier I to other tiers in the supply chain, including The efforts of corporations to support raw materials suppliers. labour rights within their supply chain are often contradicted by aggressive commercial The above discussion suggests that high policies and practices that constrain the sustainability performance would be assessed capacity of suppliers to respond to enhanced on the basis of high rates of unionization sustainability norms through improvement and collective bargaining coverage, ongoing in labour rights and working conditions. To improvements through time, and the extent to assess the relevance of this situation it would which significant regional or country deficits be useful for corporations to disclose the scale are corrected. of financial support and incentives provided for suppliers engaged in social or sustainability As regards normative targets related to upgrading. labour rights, both international soft law associated with ILO conventions and ethical obligations associated with the corporate social responsibility agenda would seem to suggest that all workers in large corporations
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CHAPTER 9 Corporate Political Influence
Introduction associated historically with developmental or welfare states, trade unionism and other forms The challenge of reconfiguring power relations of active citizenship. involves not only enhancing the capacity of stakeholders concerned with inequality and The earlier discussion in Chapter 5 on unsustainable development to exert claims inequality of income and wealth referred to the on corporations and governments, but also parallel between the extremes of the late 19th arresting and downsizing the capacity of century Gilded Age and the early 21st century, corporate interests to shape public policy in as noted by Thomas Piketty (2014). It is no ways that reproduce and reinforce perverse coincidence that similar extremes are found patterns of development. in relation to corporate power and political influence. Just as the so-called robber barons It appears that corporate political influence in the 1880s and 1890s228 bought influence (CPI) has risen dramatically in recent decades. to re-regulate corporate America in their This reflects both the volume of financial and favour, today corporations spend billions of human resources allocated by corporations to dollars to foster institutional arrangements and electoral politics, lobbying and other forms of interactions with policy makers that appear to policy advocacy, as well as the relative decline of align with their core interests or facilitate access countervailing ideological and political forces to the public policy process. 228 See Korten 1995.
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A key concern about CPI centres on its What CPI is, and why it matters contradictory nature from the perspective of ESG goals and political norms associated CPI refers to a variety of ways and means by with pluralist and participatory democracy. which corporations can shape the policy process. CPI may also be contradictory when it This shaping takes place through a combination comes to competition policy. To borrow from of interactions, between corporate interests and UNCTAD’s analysis of monopoly behaviour, individuals or institutions associated with the rather than increase the economic pie, CPI public sector, which may be direct or indirect, can enable relatively few corporations to grab formal or informal, transactional or relational, a larger share of it (UNCTAD 2017:120-121). legal, quasi-legal or illegal. Key aspects of CPI include: direct or indirect payments and other After decades in which CPI was a quasi-taboo forms of support to politicians, political parties and massively underreported topic, a broader and campaigns; financial and other support for coalition of interests concerned with this lobbying and advocacy organizations; and other issue is now taking shape. As a result, some ways of influencing the cultural and knowledge standard setters, regulators, rating agencies circuits or “epistemic communities”230 that both and companies are beginning to treat CPI inform the policy process and frame the broad more seriously and comprehensively. ideological parameters or worldviews of policy agendas. This latter aspect can be achieved, This chapter addresses the challenge of for example, by providing technical expertise, measuring the sustainability performance generating both scientific and anti-scientific of corporations as it relates to CPI and data and analysis, and the so-called revolving identifying appropriate indicators. Following door syndrome—the two-way flow of personnel this introduction we briefly define what CPI between the public and private sectors, which is and why it matters as a material issue within often occurs “in order to exploit their period of sustainability performance disclosure. The service to the benefit of their current employer” argument is made that perverse forms of CPI (Transparency International 2010:2). CPI gives are not simply a case of a few unethical bad cause for concern for a number of reasons. apples; rather, they are structural in nature. • Policy making, which should be in This, in turn, has important implications for the public interest, ends up favouring policy solutions and sustainability performance narrower private or vested interests. accounting. We then trace the emergence of • CPI supports or fosters policies CPI as a key performance issue within ESG associated with economic liberalization assessment, and describe what constitutes good and aggressive growth strategies—free practice in mainstream ESG assessment. Not trade, tax cuts, environmental and only has CPI come to be regarded as a material labour market flexibilization or de- issue for a broader variety of stakeholders, regulation231 and so on—that can including investors; there are also calls for undermine human and labour rights, 229 See Transparency International UK 2015, more granular disclosure. The overarching social policy, environmental protection which is discussed purpose of recent developments in CPI and development strategies in the below. disclosure has been to promote transparency Global South. 230 See Haas 1992. regarding contributions and recipients, as well • There is considerable misalignment 231 The term as fostering “integrity”, understood in terms between a company’s lobbying “de-regulation” 229 refers not only to of both creating a “control environment” objectives and its own CSR or ESG the rolling back of and ensuring that basic ESG principles and principles and goals. existing or proposed labour market, goals are supported rather than undermined • CPI is opaque and largely hidden from environmental, fiscal by CPI. We then examine the possibilities of view. and other regulations but also to weakened going beyond transparency and qualitative • The volume of resources dedicated administrative capacity indicators by considering possible quantitative to corporate lobbying is not only vast or willingness to implement existing indicators. but far exceeds that available to other regulations. stakeholders and interest groups.
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Beyond these ESG concerns, there are also tional risks, exposing a sort of Jekyll and Hyde those associated with fair competition. character when companies that indirectly or Corporations often support incentives, sub directly project themselves as CSR or ESG sidies and protectionist measures that may leaders are revealed as supporting public undermine the capacity of small- and medium- policies and regulatory action (or inaction) that sized enterprises to access markets and contradict sustainability goals. compete on a level playing field. Furthermore, such measures may foster market inefficiencies The misalignment of CPI and sustainable that ultimately disadvantage consumers development has become particularly apparent through higher prices. And, as noted by in the context of climate change, where the Khan when analysing the monopoly power of lobbying practices of various trade associations Amazon in online retail, the dynamics of the and organizations, as well as politicians contemporary platform economy, combined supported by corporate finance, undermine with fiscal policy and blind spots in antitrust global goals concerning emissions reductions. In policy, often facilitate rapid growth. Such the United States, this disconnect has prompted growth is achieved not only by prioritizing numerous shareholder proxy resolutions calling investment over profit maximization, however, on corporations to align their lobbying practices but also through “predatory pricing”, as well with climate change goals. as “control [of] the essential infrastructure on which their rivals depend…[and by] exploit[ing] The global financial crisis of 2008-2009 also information collected on companies using its focused attention on corporate political services to undermine them as competitors” influence and how it shaped public policy both (Khan 2017). before and after the crisis. Part of the cause of the crisis related to so-called regulatory capture In relation to data on lobbying expenditures by that had resulted in a protracted period of economic sector, findings by RobecoSAM financial deregulation. Following the crisis, [concur] with a recent European the ongoing intimacy of public and financial Central Bank study showing firms interests fostered impunity, the bailout of large in more protected sectors, (i.e. firms banks and some other institutions considered from non-tradable or highly regulated “too big to fail”, and the roll-back of regulatory sectors) tend to spend more for lobbying proposals and controls. This was due as much activities. The impact is clear—firms to the powerful financial lobby machine as the with higher lobbying expenditures have fact that “reformers simply lacked the expertise higher profits and are less productive, and necessary information, which they got since they are operating in closed or from the financial sector” (Vander Stichele highly concentrated markets. These 2018). In the process, the voices of other firms are successful at protecting their interests were marginalized. own profits and interests even at the expense of greater society. In the mid- The double standards associated with CPI and term, engaging in this behaviour en corporate ESG discourse are reflected not only riches owners of incumbent firms who in outright contradictory behaviour, but also in benefit from favourable regulatory and the pattern of corporate spending on lobbying policy regimes. But from a business by issue area. The relative weight of ESG issues 232 Even these figures, perspective, even in the short and mid- within the broader portfolio of lobbying issues however, may overestimate term, innovation and competition are appears to be fairly minimal. Oxfam America’s the spending on stymied. In the long term, from a social 2018 study of 70 US corporations (the top 10 progressive policy positions as the and environmental perspective, human across seven sectors) reveals that in 2017 they methodology could health, the environment, and social spent approximately USD 1.5 million to lobby not capture whether lobbying related to welfare are harmed (2018a:12). Congress on climate change, USD 11 million climate change, for on diversity and inclusion issues, and USD example, was for or 232 against solutions From the perspective of corporations them 44 million to lobby on tax, out of a total to combat climate selves, CPI can generate significant reputa lobbying expenditure of USD 281.5 million. change (Oxfam 2018).
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Misalignment occurs not only regarding • the pharmaceutical industry spent sustainability norms but also traditional approximately USD 280 million; norms of democracy. Part of the legitimacy • the US Chamber of Commerce spent or philosophical justification of corporate nearly USD 95 million; and political spending and advocacy derives from a • total expenditure on lobbying pluralist conception of politics and democracy: amounted to USD 3.42 billion. all stakeholders have a right to a voice within the policy process. But pluralism assumes Drutman (2015a) reports that 95 of the 100 some degree of equivalency in the volume of organizations that spend the most on lobbying that voice. Contemporary CPI trends seriously “consistently represent business”, while for undermine any possibility of equivalency. every dollar spent on lobbying by trade unions and public interest groups, large corporations For instance, a 2014 study that assessed the and their associations spent USD 34. power of the financial lobby in the EU found that the financial industry spends more than Since the late 1970s, when corporations and EUR 120 million per year on lobbying in trade unions spent roughly similar amounts Brussels; it employs over 1,700 lobbyists in on congressional campaign funding, the gap more than 700 organizations that had seven has increased significantly (see Figure 9.1). times more encounters with EU institutions than did NGOs, trade unions and consumer Both the scale and opacity of corporate organizations together. It outspends other political spending have become even more (public) interests in terms of EU lobbying by a contentious following the 2010 decision of the factor of more than 30 (CEO et al. 2014). Supreme Court known as Citizens United. This ruling lifted certain prohibitions on This kind of imbalance is similarly evident corporate campaign financing and fueled the in the United States, where the top 50 US growth of so-called undisclosed dark money234 corporations spent approximately USD 2.5 (Evers-Hillstrom et al. 2019). 233 These groups include Alphabet’s Google, billion on lobbying Congress between 2009 Amazon, Microsoft, and 2015 (Oxfam America 2017). Data for It is such developments related to misalignment, Apple and Facebook (Bloomberg 2019a). 2018 (Center for Responsive Politics 2019) chronic and growing imbalances in spending
234 indicate that: and influence among interest groups, as well While corporations are still barred • the five tech giants alone spent USD as opacity that have prompted sectors of the from making direct 64.3 million on lobbying at the federal ESG community to widen the arc of their contributions to 233 candidates in federal level; spotlight to encompass CPI. elections, the ruling allowed them to spend money on electioneering Figure 9.1. Corporate and trade union spending on campaign funding (US Congress) communications and to advocate for the election or defeat 200 200 of candidates when this is not done 180 180 in cooperation or 160 160 collaboration with the candidate concerned 140 140
and his or her 120 120 campaign structure. The ruling facilitated 100 100
the creation of “Super 80 80 PACs”, which are able to raise unlimited 60 60 amounts of money for independent 40 40 expenditures, such as 20 20
political advertising, $) contributions (millions of 2014 PAC from any source, 0 0 1980 1984 1988 1992 1996 2000 2004 2008 2012 including corporations (US SIF Foundation Labor Corporate Source: Based on Kramer 2017. Reproduced with permission. 2014).
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The structural underpinnings expense of long-term commitments of financial of corporate power resources to productive activities” (UNCTAD 2017:121).235 Ben Fine also notes that it leads to Care needs to be taken in how we understand prioritizing shareholder value, or and critique corporate political influence financial worth, over other economic and its relationship with (un)sustainable and social values; the pushing of development. It is easy to reduce the core policies towards conservatism and problem to merely one of unethical behaviour commercialization in all respects; associated with bribery and corruption extending influence of finance more that results in—or seeks to secure—perverse broadly, both directly and indirectly, incentives and subsidies for particular over economic and social policy; placing corporations and industries. Nor is it simply more aspects of economic and social life ideational—relating, for example, to the views, at the risk of volatility from financial values and discourse of a managerial class, instability; and, conversely, placing the corporate leaders or traditional investors who economy and social life at risk of crisis assume the need for minimalist government from triggers within particular markets regulation and the legitimacy of cost reduction as with the food and energy crises that via environmental and social externalities. preceded the financial crisis (2014:24). Rather, the problem is structural in nature. As UNCTAD’s 2017 Trade and Development As UNCTAD points out, not only the financial Report makes clear, the dramatic rise in asset but also the non-financial corporate sector is and income inequality in recent decades is heavily implicated in rentier capitalism. This largely explained by the fact that “increasing takes place via such mechanisms as embedding market concentration in leading sectors of the intellectual property rights in trade regimes, tax global economy and the growing market and avoidance and evasion, subsidies or “corporate lobbying powers of dominant corporations welfare” (Farnsworth 2012) and “stock market are creating a new form of global…capitalism manipulation to boost compensation for to the detriment of balanced and inclusive firms’ chief executive officers (CEOs) and top growth for the many” (UNCTAD 2017:119). management” (UNCTAD 2017:120).
A key distinguishing characteristic of this “new Such analysis suggests that the rise of CPI form” is what economists refer to as rents, that is both a cause and an effect of structural is, “income derived solely from the ownership changes in capitalism that are contradictory and control of assets, rather than from to sustainable development. These changes innovative entrepreneurial activity and the have a number of implications for corporate productive use of labour”. Rents derive from sustainability performance guidance and institutional arrangements such as property assessment. First, when examining whether rights, regulations and power relations “which corporate political spending and lobbying are determine who generates an income from aligned with ESG goals, it is as important—if privileged access to, and control of, specific not more so— to examine alignment associated assets, and who will have to make a living with macroeconomic, fiscal and competition through traditional entrepreneurial activity or policy. Second, public policy is both the the provision of labour” (UNCTAD 2017:120). immediate cause of and the necessary solution 235 UNCTAD also notes to the imbalances and injustices associated that “these strategies have [also] facilitated Systemic and structural changes associated with CPI. Voluntary initiatives and codes of the expansion of with financialization, and the scaling-up and conduct may help, but on their own they can do market power and domination by allowing concentration of market power, underpin these little to overcome the structural underpinnings firms to leverage developments. Financialization has fostered of corporate political irresponsibility. Third, short-term financial success and high “the systematic favouring of short-term financial given the systemic and structural nature market valuation to returns to institutional shareholders, which of the issue, what needs to change are not engage, for example, in aggressive mergers has biased investment patterns towards sectors simply instrumental aspects related to political and acquisitions” and activities that promise quick returns at the spending and lobbying, but also other (2017:121).
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mechanisms associated more with cultural • Legitimacy: Are the means of and social interactions, the revolving door, influence proper uses of corporate networking and knowledge transfer. Fourth, power? What policies do companies whether regressive or progressive from the have on topics like political perspective of sustainable development, policy donations, sponsorship and bribery? change requires a reconfiguration of power • Transparency: Do companies disclose relations among stakeholders. The crucial their positions on key public policy question for assessing corporate sustainability issues? Do they reveal their external performance is whether stakeholder and memberships, donations, and advocacy coalitions are emerging that can methods of influence? exert the necessary pressures to force both • Consistency: Do companies have corporations and governments to promote systems in place to ensure that transparency and greater alignment of existing lobbying activities and positions are patterns of CPI with the ESG values and goals aligned with their environmental, many corporations purport to uphold. And social, and ethical principles, policies lastly, do companies claiming ESG credentials and commitments, and that they support, ignore or resist such coalitions? are consistent across borders and functions? • Accountability: Do companies take The rise of CPI as a key responsibility for the impacts they performance issue have on public policy—through their lobbying, memberships, donations, While the issue of CPI in general, and and other activities? lobbying in particular, surface periodically in • Opportunity: Do companies mainstream CSR or ESG circles, only recently proactively attempt to influence has CPI emerged as a key performance issue of public policy to support the societal concern to a wide spectrum of stakeholders. transition towards sustainable Even issues such as anti-corruption and bribery, development? Have they fully which were legislated in the United States explored how more effective public in 1977 and referenced in the 1976 OECD policy on sustainability issues could Guidelines for Multinational Enterprises, be a source of competitive advantage? took years to be regulated and codified more (SustainAbility and GPC 2000:4) broadly (Jakobi 2007).236 The report noted, however, that “[f]ew, if any, In the late 1990s, corruption in the oil, gas multinationals have directly coordinated their and mining sectors prompted an upsurge of approach to political and policy engagement attention to the issue of transparency. The with their increasingly ambitious public transnational civil society network Publish commitments to sustainable development” and What You Pay saw its advocacy rewarded in that “[f]ew criteria for ranking companies have 2002 when the UK government launched the directly included these aspects” (2000:3-4). 236 It was not until 2004 Extractive Industries Transparency Initiative that the United Nations (EITI), urging both host country governments Five years later, SustainAbility and WWF adopted the UN Convention against and companies operating in those countries to UK (2005) followed up this report with Corruption, which publicly disclose their payments and revenues Influencing Power: Reviewing the conduct and entered into force the (Kantz 2012). content of corporate lobbying—an assessment of following year. This became the legal basis how 100 of the world’s largest corporations for UN Global Compact Efforts to mainstream the issue of CPI received a had responded to the challenge of corporate Principle 10 on anti- corruption, added in boost in 2000 via the report Politics and Persuasion political transparency and consistency through 2004. The principle in which SustainAbility and Government their reporting practices. Ranking the quality calls on companies to establish management Policy Consultants (GPC) highlighted the often of reporting—from a low of “no disclosure”, systems to address fragmented and contradictory public policy on up through “basic”, “developing”, and corruption both internally and within agendas of companies. The report identified “systematic” to “integrated” reporting, it their supply chains. the following five key features of best practice. found that 82 companies either disclosed
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no information or simply acknowledged the record of transparency and accountability relevance of the issue without developing concerning its political involvement in state policies or systems to address it. “Systematic” or federal-level U.S. politics, or in non-U.S. reporting, involving disclosure on several politics” (Becchetti et al. 2013:23). material issues and having an explicit policy on lobbying, was practised by only 8 companies,237 In 2010, the OECD adopted the Recom while none achieved the “integrated” reporting mendation on Principles for Transparency status reserved for companies whose lobbying and Integrity in Lobbying which has four practices were consistent with their ESG main building blocks: (i) promoting a level values. playing field through openness and access; (ii) enhancing transparency in lobbying; (iii) That same year the consulting and standards safeguarding integrity; and (iv) mechanisms firm Accountability, in partnership with the UN for effective implementation, compliance Global Compact, examined what “responsible and review. The Recommendation also ex lobbying” should consist of in its report tended the concern about relations between Towards Responsible Lobbying: Leadership and policy makers and the private sector beyond Public Policy. The concept was defined in terms transparency and integrity related to con of “[b]eing consistent with an organization’s ventional forms of lobbying, by referring to the stated policies, commitments to stakeholders, revolving door issue (OECD 2010). and core strategy and actions”, and “[a]dvancing the implementation of universal principles and These and other OECD standards have values (such as those embodied in the UN Global informed the evolution of GRI reporting Compact) in business practice” (Accountability standards related to corporate political 2005:14). The route to responsible lobbying influence. Under the G2 Guidelines launched consisted of a six-step “lobbying health-check” in 2002, guidance was fairly general, calling comprising a series of questions that management for a “[d]escription of policy, procedures/ needed to address: management systems, and compliance • Alignment: Are our lobbying mechanisms for managing political lobbying positions aligned with our strategy and contributions” and information on the and universal principles? “[a]mount of money paid to political parties • Materiality: Do we lobby on key issues and institutions whose prime function is to that affect the organization and its fund political parties or their candidates” stakeholders? (GRI 2002:55). • Stakeholder engagement: Do stakeholders have a say in developing Assessing the quality of reporting related to our lobbying positions? corporate political influence six years later, Bart • Reporting: Are we transparent about Slob (2008) noted that:238 our lobbying positions and practices? • While political donations and policy • People: Do we know who is lobbying influence are sometimes recognized as on our behalf and where our spheres responsibility issues in the context of of influence are? human rights, there are few efforts to • Processes: Are management systems address the issue of corporate lobbying and guidelines in place for responsibly more widely. lobbying? (Accountability 2005:14). • Many companies choose to ignore relevant GRI guidelines. Around the same time, a leading United States • Like many other reporting templates, ratings organization, KLD, added indicators GRI does not require companies to 237 These were BASF, to assess positive and negative performance report on lobbying activities conducted BP, Chevron, Dow, concerning “political accountability”. Strong on their behalf by associations and Ford, General Motors, GlaxoSmithKline and performance occurred when “the company chambers of commerce which may HP. has shown markedly responsible leadership on adopt positions contrary to official 238 See also Slob and public policy issues and/or has an exceptional corporate CSR policy. Weyzig 2010.
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• Although lobbying has rarely been became effective for reports or other materials integrated into company responsibility published on or after 1 July 2018. In addition policies and management systems, to recommending that an organization should some companies do provide a measure report “significant issues that are the focus of its of transparency on specific aspects of participation in public policy development and lobbying, with disclosure of political lobbying”, and “its stance on these issues, and donations being the most advanced any differences between its lobbying positions element. Unfortunately, this is also and any stated policies, goals, or other public probably one of the least important. positions”, the GRI standard requires reporting • None of the legal structures created so organizations to disclose: far require transnational corporations • the total monetary value of financial to disclose their policy positions, and in-kind political contributions without which corporate accountability made directly and indirectly by the remains severely limited. Enforcement organization by country and recipient/ of any such laws is often impossible beneficiary; and because violations are difficult to • if applicable, how the monetary value of detect. in-kind contributions was estimated.239 • Voluntary initiatives and policies of individual companies and joint self- Guidance is provided as to what constitute regulatory initiatives will be vitally direct and indirect political contributions: important for progress. Such initiatives “financial or in-kind support given directly might include the disclosure of or indirectly to political parties, their elected lobbying positions, funding of civil representatives, or persons seeking political society organizations and academics, office”. More specifically, indirect political and reporting on a company’s input in contribution is defined as “financial or in-kind business associations. support to political parties, their representatives, or candidates for office made through an The issue of lobbying surfaced within the intermediary organization such as a lobbyist United Nations Guiding Principles on Business or charity, or support given to an organization and Human Rights, adopted in 2011. Under the such as a think tank or trade association linked pillar of the framework dealing with corporate to or supporting particular political parties or responsibility to respect human rights, the causes” (GRI 2016b). Financial contributions Principles call for coherence: can include donations, loans, sponsorships, Just as States should work towards retainers, or the purchase of tickets for policy coherence, so business enterprises fundraising events. In-kind contributions can need to strive for coherence between include advertising, use of facilities, design their responsibility to respect human and printing, donation of equipment, or the rights and policies, and procedures that provision of board membership, employment govern their wider business activities or consultancy work for elected politicians or and relationships. This should include candidates for office. policies and procedures that set financial and other performance incentives for In 2017 RobecoSAM, introduced a new personnel; procurement practices; and criterion for its annual global survey of company lobbying activities where human rights ESG performance, the Corporate Sustainability are at stake (United Nations 2011:17). Assessment (CSA), which forms the basis of the various Dow Jones Sustainability Indices. In recent years, the question of transparency has This criterion aims to assess (i) “the amount of largely centred on the need for more in-depth money companies are allocating to legislative, 239 See https://www. globalreporting.org/ disclosure related to political spending and political and public discourse, contributions standards/media/1030/ lobbying. The revised GRI reporting standards to political campaigns, lobbying expenditures gri-415-public-policy-2016. that were launched in 2016 introduced a and contributions to trade associations and pdf. Accessed 20 June 2020. “Public Policy” standard (GRI 415), which other tax-exempt groups organizations [sic]
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whose primary role is to create or influence support or opposition,242 and the three public policy, legislation and regulations both largest contributions to organizations, directly and indirectly” (Gaffuri 2019:17); and candidates or associations. (ii) the degree to which companies disclose this information in the public domain. Not only standard-setting organizations but also the ESG investment community is taking note Specifically, the criterion asked companies to: of CPI as a key performance issue. Shareholder disclose their total spending on policy influence proposals that target lobbying have multiplied, efforts over the last four fiscal years; and specify notably since the Citizens United Supreme 240 These include health care, materials, financials, real the top five recipients of those contributions Court ruling (Reuters 2015). Indeed, the estate and utilities. 243 grouped into organizations, candidates, or largest number of proxy resolutions filed by 241 These include (i) lobbying, issues (RobecoSAM 2018a). investors who were members of the Interfaith interest representation or Center on Corporate Responsibility (ICCR)244 similar; (ii) local, regional or national political It soon became apparent, however, that more by early 2019 concerned lobbying and political campaigns/candidates; granular data were required for any meaningful contributions (50 resolutions), followed by (iii) trade and business associations or tax-exempt assessment. According to the 2017 CSA: climate change (45), human rights/trafficking groups (for example think • Many companies only reported political (43) and diversity/inclusiveness (37). Details tanks); and (iv) other expenditures such as ballot contributions and very few companies of the 2019 proxy resolution on lobbying measures and referendums. “broadly and liberally disclose their See RobecoSAM 2018. spending in the various policy influence 242 As regards disclosure areas” (RobecoSAM 2018a). Box 9.1. 2019 Lobbying disclosure related to “support”, resolution filed at ExxonMobil companies are expected • Most did not publicly disclose to clarify whether they are expenditures beyond what is legally engaging in full support; support with minor mandated, nor trade association “Whereas, we believe in full disclosure of ExxonMobil’s direct and indirect lobbying activities exceptions, or support with major exceptions memberships. and expenditures to assess whether ExxonMobil’s related to the substance or • Contributions to trade associations lobbying is consistent with its expressed goals and geographical scope of the far exceed more direct spending in the best interests of shareholders. measure. 243 on lobbying, campaigns, and other Resolved, the shareholders of ExxonMobil request Proxy resolutions are proposals, related to explicitly political organizations. the preparation of a report, updated annually, corporate governance and • Disclosure of issues or topics is rare disclosing: social and environmental (RobecoSAM 2018c). responsibility issues, 1. Company policy and procedures that are submitted by • Positive engagement on climate governing lobbying, both direct and shareholders for a vote change or “green” construction are far indirect, and grassroots lobbying at the annual general outweighed by the negative. communications. meetings (AGMs) of 2. Payments by ExxonMobil used for publicly listed companies, • Levels of spending vary widely, by (a) direct or indirect lobbying or (b) particularly in the United States. While often failing grassroots lobbying communications, company, sector and region. to gain a majority, they can • Companies in more protected sectors, in each case including the amount of serve to highlight topical or the payment and the recipient. emerging key sustainability (that is, non-tradable or highly 3. Description of management’s and 240 performance issues and regulated sectors ) tend to spend the Board’s decision-making process place a company in the more for lobbying activities. and oversight for making payments media spotlight. described above. 244 Some 300 member organizations, comprising To address several of these issues, the two For purposes of this proposal, a ‘grassroots faith communities, asset indicators were updated in 2018 to: lobbying communication’ is a communication managers, trade unions, • separate the various types of spending directed to the general public that (a) refers to pension funds, NGOs and other investors, make 241 specific legislation or regulation, (b) reflects a view into distinct categories; on the legislation or regulation and (c) encourages up the ICCR. Annually, • specify the percentage of operations the recipient of the communication to take action they file hundreds of with respect to the legislation or regulation. resolutions with United covered, where spending data are only States corporations on ESG ‘Indirect lobbying’ is lobbying engaged in by a available for specific regions; issues in an effort to foster trade association or other organization of which improved transparency • specify two major issues/topics for ExxonMobil is a member.” and performance, and which a company spent money in so doing mitigate risk (directly or indirectly) to influence and enhance long-term Source: Smith 2019 shareholder value (ICCR policy, the company’s position in 2019).
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disclosure filed at Exxon Mobil are presented policy positions, as well as time series data on in Box 9.1. While these initiatives usually fail expenditures related to lobbying activities and to get the necessary votes for approval, they do political campaign contributions.246 add to the groundswell of pressure related to responsible CPI and transparent disclosure. Ongoing issues and gaps Through time, then, standard-setting and rating organizations have come to interpret While standard setters, ratings organizations good practice in terms of corporate policy, and investors are increasingly on board with the accountability and disclosure related to political idea that CPI merits closer attention within the contributions and lobbying. More specifically, field of sustainability disclosure and reporting, attention has centred on (i) the quality of the its uptake as a key performance issue has “control environment” comprising, for instance, encountered significant bumps along the road. explicit and clear company policy, oversight Most shareholder resolutions, for example, are and monitoring mechanisms; (ii) transparency, not successful because of resistance from not public reporting and increasingly detailed only senior management but also the largest
245 Companies registering disclosure related to political contributions institutional investors (Posner 2019). Some the top score of 100 on and lobbying; and (iii) clarity and explanation standard-setting organizations also convey the 2018 CPA-Zicklin regarding the alignment (or misalignment) of doubts about the materiality of the CPI issue. Index included Becton- Dickinson & Co., CPI practices and ESG principles and policy The widely-used SASB reporting guidelines, Edwards Lifesciences (Transparency International UK 2015). for example, dropped “Regulatory Capture Corp. and HP Inc., as well as five others that and Political Influence” as a stand-alone had a non-spending As regards transparency, emphasis is placed on general issue category in 2018, subsuming it policy: Accenture PLC, Automatic Data more granular disclosure that encompasses the under “Management of Legal and Regulatory Processing Inc., following: Environment”.247 This was part of a revision Goldman Sachs Group Inc., Praxair Inc., and • forms of direct expenditure that saw the number of issue areas reduced Schlumberger Ltd. disaggregated by recipient (such from 30 to 26. The decision reflected the 246 See BD website at as lobbying organization, political apparent lack of recognition of the materiality https://investors.bd.com/ campaign); of CPI within different industries and sectors. participation-political- process • forms of indirect expenditures (for The SASB Materiality Map, which identifies
247 example, trade associations, not-for- and compares likely material sustainability The topic, Management of profits); issues across different industries and sectors, Legal and Regulatory • Environment, group-wide and subsidiary had revealed that “regulatory capture and “addresses a expenditures; political influence” was among the least company’s strategy • CbC expenditures; and material of 30 issue areas across 10 industries and reliance upon regulatory policy or • in countries where headquarters and sectors. monetary incentives and major affiliates are located, by (such as subsidies and taxes), its actions in-country jurisdiction, that is local, Progress at the level of corporations themselves to influence industry state/provincial, and federal level. is also lukewarm or uneven. Transparency policy (such as through lobbying), overall International-UK notes that while regulations reliance on a favorable User-friendly disclosure is also important. In in the United States require companies regulatory environment for business compet this regard, the CPA-Zicklin Index specifies to disclose domestic lobbying costs at the itiveness, and ability and gives full credit for rating purposes to semi- federal level, and while the EU Transparency to comply with annual reporting, disclosure of “at least the past Register recommends voluntary disclosure of relevant regulations. It may relate to the five years” of data, and a dedicated political expenditures and contacts, alignment between disclosure webpage. In 2017, the medical company stakeholders, including in management’s and investors’ views of technology company Becton-Dickinson (BD) vestors and employees, remain largely regulatory engagement became the first S&P company to score 100 on unaware of precisely how much com and management of 245 regulatory compliance the CPA-Zicklin Index. The company is noted panies invest in lobbying around the at large.” See SASB for its easily accessible, user-friendly presentation world, the issues being pursued and, as Materiality Map. https:// of detailed information on policy and oversight is generally the case, how companies are materiality.sasb.org/. Accessed 20 June 2020. related to corporate political engagement and benefiting from lobbying governments.
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This is an issue that curtails the private Box 9.2. CPI at Boeing Co. sector from being held to account for unethical practices (Transparency The 2018 CPA-Zicklin Index singles out Boeing as an International-UK 2018:16). example of a company that meets the rating criterion of “publicly describ[ing] the types of entities considered to be proper recipients of the company’s political spending”. Part of the problem lies in the tendency for disclosure to focus heavily on political spending Since 2010, the Company has not made any which can skew the assessment of progress contributions from corporate funds to state or local candidates or political parties. Also, Boeing has not related to transparency and policy. Assessing expended any corporate funds since 2011 in support the state of CPI disclosure on a scale of 0 to of or opposition to ballot initiatives, or since 2012 for 100 among the S&P 500 companies, the 2018 political contributions to Section 527 entities. Boeing also has not contributed and does not contribute Index notes a gradual improvement in recent corporate funds to Super PACs, or for electioneering years: “Among the 493 companies studied… communications or independent expenditures. the average total score was 44.1 percent on a Corporate contributions to federal candidates are prohibited by federal law, and Boeing accordingly makes scale of 0 to 100 compared with…39.8 percent no such contributions (CPA-Zicklin 2018). for the 497 companies in 2015” (Center for Political Accountability and the Zicklin Center This assessment, however, bypasses the increasing for Business Ethics 2018:20). amounts being channeled to politicians via the company’s employee-funded political action committee (PAC) and spent on lobbying. Bloomberg (2019c) reports that the As an UNRISD research paper points out, PAC almost tripled its spending over the past decade, while disclosure of political donations seems contributing USD 5.9 million to federal candidates and committees in the 2018 election cycle. It also spent to be the most advanced aspect of reporting between USD 15 million and USD 21 million annually related to CPI: on lobbying in Washington, D.C. and contributed USD 1 this is probably one of the least important million to both President Obama’s and President Trump’s channels of influencing public policy… inaugural committees in 2013 and 2017, respectively. Direct lobbying and constituency A 2019 shareholder resolution requiring Boeing to building by individual companies, as report annually on CPI notes that the company ranks as well as various collective strategies, tend the tenth largest federal lobbying spender since 1998. Furthermore, to have a much larger influence and [a]lthough the Company makes the basic account for a far greater share of lobbying lobbying disclosures required by law, its current budgets. Direct lobbying by corporate disclosures omit critical information—particularly its payments to trade associations, including executives and lobbying strategies at those portions that are used for lobbying, and the collective level remain a black box, state-level lobbying spending in states without the former because the lobbying itself strong lobbying disclosure laws. Boeing fails to disclose its trade association memberships can remain completely hidden and the (Seventh Generation Interfaith Inc. 2019). latter because the role and involvement of individual companies can be impos Apart from the scale of political and lobbying sible to determine (Slob and Weyzig expenditures, there are also concerns about CPI involving the revolving door. Among the company’s lobbyists are 2010:178-179). a former representative who served as chairman and ranking member of the House Defense Appropriations The 2018 Corporate Political Engagement Subcommittee. Boeing added a lobbying firm founded by one of the current president’s biggest fundraisers in the Index, which assessed the performance of 104 2016 election (Bloomberg 2019c). According to the same large UK-based corporations, notes that while shareholder resolution, “In 2006, Boeing was fined $615 most companies scored poorly on lobbying million after it was revealed that Boeing hired the top Air Force procurement official as a lobbyist, right after she disclosure, they “generally scored better for had helped Boeing secure a tanker aircraft deal” (Seventh their controls on political donations, with 60 Generation Interfaith Inc. 2019). percent achieving at least a C grade”. During the nine-month assessment period, 30 percent of companies “actively strengthened their political engagement policies and another 17 percent pledged to do so” (Transparency International UK 2018: 25).
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The Index revealed that the only assessment primarily with transactional aspects involving question where the average rating was relatively political contributions and lobbying. Relational high (a B on an A to F scale) was whether there aspects are far more difficult to assess and was a group-wide global policy. The questions measure. This relates partly to their informal that generated the lowest grading (E or F) nature—the case of networking, for example. A included expenditure thresholds, monitoring few standard-setting and advocacy organizations, and evaluation, monitoring or managing however, have tried to focus on another key memberships related to lobbying, publicly relational aspect, namely the revolving door. listing all organizations of which the company is a member, transparency of expenditure, Interest in, and public concern about, the contracted politicians, transparency of revolving door increased in the wake of the memberships, revolving door policy, cooling- global financial crisis and prompted a number off period, and transparency of secondments. of studies on relations between governments According to Transparency International UK and the finance and banking industry. As (2018), of the 104 companies: noted by the OECD: • 76 ranked either fairly poorly, poorly The close relationship between regulators or very poorly for their overall and lawmakers on the one hand and the political engagement transparency. finance industry and its lobbyists on • Nearly four out of five companies the other is fed by the regular cycling of ranked poorly for their lobbying personnel between one side of the fence transparency. and the other. …Tackling the revolving • 97 out of 104 companies ranked door is an indispensable part of the poorly for their controls against the process of restoring confidence in both revolving door. the political system and the financial • One company (GSK) received the markets more generally (2009:66). highest (A) ranking. In its analysis of the possibility of regulatory Full granular disclosure—broken down by capture by large banks in the Netherlands, jurisdiction or geography, and direct and SOMO (2013) notes the need for the GRI and indirect payments by type of recipient—is rare. others to “[b]roaden the scope of the reporting Positive moves are often related to one aspect guidelines on issues related to lobbying by only. Under pressure from activist shareholders, developing indicators or compilation points Wal-Mart, for example, announced in 2015 on…the phenomenon of revolving doors, and that it would start disclosing what it spends on the number of annual job changes between lobbying not only at the federal level but also the company and the public sector (regulators on a state-by-state basis.248 According to Reuters: and financial policy makers)” (van Tilburg and Th[is] previously unreported move would Römgens 2013:56). make Wal-Mart the first constituent of the Dow Jones Industrial Average to Among the 10 steps SOMO recommends break out state expenditures at that level banks take regarding their efforts to influence of detail…[But] Wal-Mart’s move [fell] public policy are the following: “Report on short of what Zevin Asset Management job mobility between the organisation and sought when it submitted a shareholder the public sector. Be transparent about the resolution for wider disclosure at Wal- ‘revolving door’ phenomenon. Report annually Mart, including any ‘indirect lobbying’ the number of job changes between the through organizations like the U.S. organisation and the public sector (financial Chamber of Commerce (Reuters 2015). policy-makers and supervisors). Specify at what 248 In California and Texas level in the organisation this mobility has taken alone, estimates of Wal-Mart’s lobbying Earlier, the distinction was made between place.” None of the six banks involved in the payments were in the transactional and relational forms of CPI. study accepted this as a feasible step, citing region of USD 300,000 per state in 2014 Progress to date within corporate sustainability the following reasons: (i) the information (Reuters 2015). disclosure related to CPI has been associated was already in the public domain; (ii) the
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impracticality of gathering such information • number of new technical and managerial given that former employees are not obliged to staff that worked in the public sector inform their employer about their subsequent during the previous two years. professional whereabouts; and (iii) excessive bureaucratic demands. Beyond transparency and integrity The 2018 TI Corporate Political Engagement Index, which assessed the performance of 104 Transparency International (2015) notes that UK-based companies in relation to five aspects, within the field of public sector lobbying found that performance fared worst in relation reform, regulation generally focuses on three to the revolving door.249 Companies were elements: transparency, integrity and equality of assessed according to the following questions: access. The first relates to whether interactions • Is there a publicly available policy between lobbyists and public officials are and procedure covering the ‘revolving made transparent and open to public scrutiny; door’…? the second to whether there are clear and • For company staff who were formerly enforceable rules on ethical conduct for both public officials, does the company lobbyists and public officials; and the third to have a procedure for implementing whether public decision making is open to a a ‘cooling-off period’ before they plurality of voices representative of a wide range are able to hold discussions on the of interests. How might these three principles company’s behalf with their former be interpreted and applied in relation to organization? sustainability assessment of CPI? • Does the company publish details of secondments to or from the public To date, attention has focused on transparency sector? (Transparency International and integrity. The former mainly entails UK 2018: 34) disclosure related to lobbying and political contributions. Integrity involves two aspects: While 33 percent of companies had some (i) putting in place a management system controls in place to manage the revolving that operates as an institutional control door, only 6 percent published any details environment for responsible political spending of secondments or publicly prohibited and lobbying; and (ii) clarifying policy positions secondments, while 15 percent had a publicly and whether they are consistent with ESG available procedure for a “cooling off period” for objectives. Fostering a plurality of voices employing former public officials (Transparency (equality of access) can occur in two ways: first, International UK 2018). by explicitly supporting social, human rights and environmental causes and coalitions, and Good practice regarding cooling off periods— related policy reforms; and second, through “whereby a former public office holder or imposing limits on the volume of resources senior official is barred from undertaking allocated to CPI by setting quantifiable targets. tasks in the private sector that relate to their regulatory or representative duties”—tends to From the above overview of how disclosure draw on regulations introduced in a number related to CPI has evolved, it is clear that the of countries with two years being “fairly typical” main focus has been on assessing companies (OECD 2009:66). based on the degree of transparency and policy commitment and clarification. Quantitative Beyond a focus on policies and procedures, targets or normative assessments are few and far it would also be useful to assess the scale of between. As RobecoSAM points out: revolving doors in quantitative terms. What are Given the newness of the topic and the numbers of employees involved? Possible the need to establish baseline data, 249 The other aspects included (i) the control indicators include: we evaluated the responses strictly on environment, (ii) • number of technical and managerial transparency; there was no judgement political contributions, staff seconded to and from the public on spending levels or spending trends, (iii) responsible lobbying, and (iv) sector during the reporting year; and nor did we critique whether the top transparency.
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five issues/items were good or bad. are the largest source of campaign financing. Companies were assessed on the basis While companies are legally prohibited of their level of disclosure both in the from direct financing related to federal-level [Corporate Sustainability Assessment] elections, other forms of support are allowed, and in the public domain. Top scoring including employee PACs. The Transparency companies were those that clearly and International-UK assessment notes that “[a] transparently shared their contributions small number of companies recognise this both across time and across different risk and, in line with our recommendation, topic/organization types, and those that prohibit all political contributions, including provided aggregate figures and amounts allowing an employee-run PAC” (2018:13). in their own public reporting (e.g. not with links to other sites) (2018a). Beyond targets associated with zero spending on certain types of CPI, might certain limits Where might we look for guidance regarding be in order? A benchmarking study of seven quantitative targets? In a context where CPI large United States banks, Ranking the Banks, has often been associated with negative judged responsible practice related to CPI influence from the perspective of sustainable not only in terms of the presence of a weak 250 For the study in development, some players within the field of or strong policy, and the level of disclosure of question, good practices involved (i) corporate sustainability assessment extend the political contributions and lobbying activities, existence and strength notion of zero tolerance—typically associated but also the voluntary public disclosure of of a policy on political contributions: “The with norms concerning bribery and “facilitation political contribution amounts and whether bank states it does payments” (Transparency International 2014)— the bank made less than USD 500,000 in not make political contributions or has to other aspects of CPI. Certain ratings entities political contributions in the last three years, a strong and detailed place a high value on zero or minimal spending which would amount to an average of less policy”; (ii) public 250 disclosure of direct and a policy against political contributions. than USD 200,000 per annum (ICCR and political contributions: The 2015 CPA-Zicklin Index, for example, Sustainalytics 2012). The lobbying tax proposal “The bank does not gives kudos to Western Digital Corp. which announced by Elizabeth Warren as part of her make contributions or discloses direct markedly improved its ranking in large part for US presidential electoral platform set USD political contributions “not giv[ing] to candidates, parties, committees, 500,000 per annum as a threshold above and distinguishes amounts given to 527 groups, (c)(4)s, or ballot measures, and… which corporations would incur significant political parties, trade not mak[ing] independent expenditures. As its taxes (Bloomberg 2019b).251 associations and other organizations”; policy was to make no political contributions at (iii) public disclosure all, no oversight was needed and its policy was Might spending as a percentage of turnover be of lobbying activities: “The bank voluntarily clearly stated on the company website” (Center an indicator? Despite the earlier observation publicly discloses for Political Accountability and the Zicklin regarding non-judgmental assessment, lobbying amounts Center for Business Ethics 2015:26). RobecoSAM (2018a) singles out for critical and distinguishes between parties, trade commentary sectors such as health care, associations and other RobecoSAM’s rating methodology also critiques materials, and financials where average organizations”; and (iv) public disclosure or penalizes companies or sectors that have company yearly spending as a percentage of political contribution relatively high levels of political spending. It of total revenues is in the 0.025 to 0.035 amounts: “The bank made less than USD further cautions against over-generalization: percent range, followed by real estate and 0.5 million in political “[a] policy against political contributions utilities, around 0.02 percent. But in contexts contributions in the last 3 years” (ICCR and is insufficient justification of a company’s where sector leaders may have revenues well Sustainalytics 2012). prohibition against all policy influence activities. in excess of USD 50 billion even the lowest 251 Under the Warren Policies that prohibit policy influence shall level of approximately 0.01 percent reported proposal, tax rates of specifically address all the relevant categories, in the information technology sector seems 35, 60 and 75 percent would be applied to the and the amounts related to any categories not extremely high. following three bands, specifically prohibited shall be reported” (2018c). respectively: between USD 500,000 and 1 Advocating for, or rating highly, zero tolerance million; above 1 million In the United States, a few companies have or reduced expenditure levels appears to and up to 5 million; and above 5 million extended zero tolerance to support for run counter to recent developments within per year. political action committees (PACs), which corporate sustainability guidance where
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companies are urged not only to align minimalist social policies”,252 any serious their lobbying practices with their ESG commitment to corporate advocacy for sus commitments but also to become agents tainable development requires discussion of positive change by forming, leading or about such issues. participating in advocacy coalitions promoting sustainable development. This is particularly evident in relation to climate change and other environmental goals where B-Corps as well as some of the more conventional corporate majors and their CEOs are projected as leaders in progressive policy change (Elkington and Zeitz 2014). Patagonia has emphasized the importance of supporting environmental activism financially by setting a quantitative annual target, initially 10 percent of profits. This bar was subsequently raised to 1 percent of gross sales—a target that became the norm for the “1% for the Planet” initiative, which Patagonia founder, Yvon Chouinard, helped establish in 2002 to mobilize support from the business community for NGOs involved in environmental and climate causes (Demkes 2020).
Adding the political weight of corporate Indeed, most of the core sustainability leaders to advocacy coalitions would seem performance issues discussed in Part 2 of this to make sense from a political economy report—intra-firm income inequality, living perspective that sees the direction and wages, care-related aspects of gender equality, substance of policy change as a reflection of and labour rights—are treated timidly, if at the correlation of forces. But as noted in Part all, in discussions about CPI. Corporate 1, when discussing the tendency for disclosure taxation, examined in Chapter 7, features to focus on “relative” as opposed to “absolute more prominently in the new corporate decoupling”, the negotiated outcome may be advocacy. The focus, however, is often on tax fit for purpose from the perspective of “doing cuts as a means of incentivizing sustainable less harm” but not from the more holistic production, trade and consumption.253 This and ambitious viewpoint of sustainable raises the question of where governments are 252 See Farnsworth 2010. development and transformative change. In to find the fiscal resources to regulate and 253 John Elkington and this regard, it is noteworthy that the discussion support, on the scale necessary, the green Jochen Zeitz (2014), for example, refer and examples of cutting-edge sustainability and social transitions needed to address the to reduced taxes performance in the areas of corporate problem. In this context, where are the calls for corporations meeting sustainability advocacy and lobbying often bypass crucial for zero tolerance of political expenditures standards, reduced structural issues including the monopolistic or on lobbying and policy positions associated tariffs on sustainable imports, tax credits for oligopolistic concentration of market power with regressive macroeconomic and fiscal sustainable consumers and ongoing labour market flexibilization. policies? Furthermore, if corporate political and fiscal reforms to While it might be a stretch to think that spending is to remain a reality, where are the incentivize long-term sustainable wealth corporate leaders would proactively advocate calls that it be tied to SDG-related targets or creation. for measures like anti-trust regulation to curb benchmarks, including the necessary shift 254 As ECOSOC (2019) market concentration, the re-regulation of towards more progressive fiscal systems?254 points out, progressive fiscal systems refer not labour markets, and progressive taxation, only to tax rates that or that they would challenge the “taken-for- are higher for higher income earners but granted views that corporations both need also to redistributive and favour lightly regulated economies with expenditure policies.
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⚫ Concluding remarks
The above analysis suggests that contemporary From an aspirational perspective, however, trends associated with CPI pose several transparency needs to go beyond data serious challenges for corporate sustainability detailing corporate political spending and performance. These include: (i) the sheer narrative reporting on policy positions. It also volume of resources directed to causes, poli needs to address other dimensions related to ticians and policy positions that are antithetical political influence channeled via knowledge to sustainable development; (ii) the growing transfer and the revolving door. Possible gap in the relative spending of corporate indicators include: and non-corporate stakeholders; and (iii) the • number of technical and managerial misalignment of corporate lobbying positions staff seconded to and from the public and ESG and SDG goals. sector during the reporting year; • number of new technical and Recently, the ESG community has paid more managerial staff that worked in the attention to CPI, promoting a three-pronged reci public sector during the previous two pe for action: (i) transparency, in order to expose years; and measure the spending and relationships • number of days that technical and associated with CPI; (ii) a management system to managerial staff participated in expert control for good and bad practice; and (iii) nar group meetings organized by public rative reporting on lobbying positions. sector entities.
The current drive towards greater transparency With regard to sustainability targets related and granular disclosure is an important first step to CPI, the above discussion has identified in improving corporate sustainability perfor three possible scenarios. The first relates to mance accounting related to CPI. Relevant the notion of zero tolerance—that is, setting indicators include: targets to cut political spending or eliminate • forms of direct expenditure disaggregated it altogether. The second involves setting by recipient (such as lobbying annual limits in, say, the USD 200,000 to organization, political campaign); 500,000 range for large corporations. The • forms of indirect expenditure channeled third scenario involves setting targets for through third-party organizations (for the amount of spending directly related example trade associations, not-for- to supporting issues and policies globally profits); recognized as essential to the SDGs. • group-wide and subsidiary expenditures; • percentage of operations covered, where The upshot of the above discussion is spending data are only available for that improved disclosure, involving both specific regions; qualitative and quantitative indicators, is • country-by-country expenditures; needed to lift the veil on corporate political • in countries where headquarters and influence. Such transparency can allow major affiliates are located, expenditure management and other stakeholders to gauge by in-country jurisdiction, that is local, corporate policy coherence—that is, whether state/provincial, and federal level; the issues and recipients of corporate political • total and disaggregated spending over and ideological support are consistent with the last four fiscal years; those associated with ESG and SDG values • spending by top five recipients; and objectives. Transparency can also reveal • in relation to the major policy issues or whether consistency applies across the topics for which a company advocated different ways and means of engaging with and spent money, specify the three the public sector—via political spending, largest recipients per issue; lobbying and revolving doors. Furthermore, • disaggregated disclosure related to it can allow stakeholders—concerned with lobbying, specifying not only the broad the democratic deficit implicit in the growing issue area (for example climate change), imbalance in political influence among but also the normative or regulatory different interest groups—to gauge both the intent of the intervention, including its scale of CPI and its trajectory through time. relation to the SDGs.
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textualizing the present in relation to either Summing Up the past or the future. It is impossible to assess current performance without knowing whence we came (past performance) and where we Part 2 of this report has focused on a concise want to get to in terms of normative targets. set of key performance issues that relate to the structural determinants of (un)sustainable Below, we summarize some of the main development. While key from the perspective findings related to (i) how issues and indicators of transformative change, they have been could be reconfigured, (ii) the need for more poorly treated within the field of corporate granular and transparent disclosure, and (iii) sustainability assessment. And unless issues normative targets that define performance in related to inequality, distributive justice and relation to sustainable development. power relations are positioned front and centre within this field, current efforts to engage Box S.1. Assessing Performance in Context corporations as active partners in the SDG process will do little to realize the transformative Conventional disclosure in company reports tends to present data out of context. The vision of the 2030 Agenda. result can be a very partial picture of sustainability performance, often one seen through rose-tinted glasses. In order to assess performance in a meaningful way, users of sustainability reports need to be able to see (i) trends over time, as opposed to annual None of the five issue areas is entirely new. snapshots, (ii) significant variations in performance within the organizational structure Metrics and indicators that relate to each of – not only company-wide averages, (iii) instances of contradictory performance, where the areas can be found within the portfolio of “good” performance in one area co-exists with “bad” performance in another, and (iv) how current performance looks when compared to fair and just normative end goals. reporting guidelines of several standard-setting The contrast between “conventional” and more meaningful “sustainability” disclosure is and ratings organizations. We argue, however, illustrated by means of the hypothetical disclosures below. that the disclosure bar needs to be raised in Conventional disclosure various respects. • Company A reduced its carbon emissions per unit of revenue or output by 5% between 2015 and 2020. Raising the bar • Company B reduced its consumption of water by 25% over the past three years The bottom line is that it is only possible to through greater efficiency and recycling. • Company C met its fair remuneration target: all entry level employees earned above gauge whether a company is on a sustainability the minimum wage. The target of equal pay for equal work was also achieved. pathway if the data that are disclosed are • Company D paid five million dollars in corporatetaxation . structurally oriented, quantified, contextualized • Company Y reported that 70% of employees were covered by collective bargaining agreements. and user-friendly. • Company Z disclosed political spending related to elections and direct forms of lobbying at the federal or national level. Beyond the need to address structural blind Sustainability disclosure spots, throughout the report we have insisted • While Company A reduced its levels of carbon emissions intensity, absolute levels of on the importance of quantitative indicators emissions increased by 5% due to 10% growth in manufacturing output. The company also and cautioned against reading too much failed to align its performance goals with science-based climate change mitigation targets. into some of the qualitative indicators that • Company B is reducing water consumption but does not factor in water consumption related to its purchased inputs nor provides information to indicate how consumption are often held up as proxies for improved levels relate to the carrying capacity of the local watershed or what a fair allocation of performance. Another major concern is that water resources would be taking into account other users in the area. conventional disclosure and reporting tend • While Company C achieved its fair remuneration targets, average workers’ wages were still 30% below the living wage, the CEO-worker pay gap had increased from 100 to 1 to 300 to to be de-contextualized, that is, disconnected 1 over the last 10 years, and the “unadjusted” gender pay gap was in excess of 20%. from certain background, related or normative • While company D provided millions in taxes to local and federal government conditions which, when added to the equation, authorities, it also engaged in tax avoidance strategies that involved significant profit shifting to low tax jurisdictions. Further, it also has a considerable tax gap, that is, its enable users of data to gain a far clearer picture effective tax rate is substantially below the statutory tax rate. regarding corporate sustainability performance • While a significant proportion of company Y’s employees are covered bycollective (see Box S.1). Company-wide averages, for bargaining agreements, over five years this has declined from 85% to 70%. Moreover, the example, may mask major variations in data only relate to full-time regular employees. During this period the company reduced the proportion of full-time employees and relied more on subcontracted or part-time performance by region, country or affiliate. labour who were denied core labour rights. Additionally, the company-wide figure of 70% Positive performance related to one issue area masks wide variations in average by affiliate or region where the company operates. or impact may disguise negative performance in • While Company Z disclosed some forms of political spending, it failed to disclose the large amounts spent at the subnational level and via indirect forms of lobbying. Further, another. Particularly worrisome is the fact that there is no indication whether the issues it lobbies for align with, or contradict, the conventional sustainability reporting generally Sustainable Development Goals. focuses on current performance without con
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Main findings: Issues and indicators Regarding issues and indicators, the discussion suggests the following adjustments.
Fair Move beyond comparing CEO remuneration with the average remuneration of remuneration all other employees by calculating the CEO-worker pay ratio. There is also the possibility of comparing CEO pay with that of employees in the lowest income quartile.
Compare actual wages not only with the minimum wage or industry norms but also with the living wage. And compare the percentage increase in wages with that of management and CEO remuneration. Disclose the percentage of employees earning below the living wage.
Gender Broaden the focus on care support beyond maternity or parental leave equality associated with child birth and adoption to encompass support provided throughout the life cycle of an employee. In relation to the portfolio of possible support programmes, disclose which forms of support are provided. Disclose the percentage share of employees requiring care support compared with those entitled to care support and those who actually receive such support.
Corporate Disclose not only the amount of corporate taxes paid but also the tax gap taxation (effective tax rate as a percentage of the statutory rate), the effective tax rate as a percentage of pre-tax profits and the industry norm, and the volume and percentage of global profits attributed to recognized tax havens and low-tax jurisdictions.
Labour Focus not only on working conditions but also labour rights, in particular trade rights union density and collective bargaining coverage. Include data on the volume and percentage of total employees in affiliates, factories and top tier suppliers engaged via subcontracting and temporary contracts.
Corporate Move beyond disclosure related to corporate political spending to forms of political influence associated with lobbying and the revolving door. influence
Main findings: Transparency and granular disclosure Regarding transparency and granular disclosure, the discussion emphasizes the need to do the following.
Gender Go beyond company-wide metrics by disaggregating both gender representation equality and the gender pay gap by occupational category.
Fully disclose and quantify lifecycle care needs and levels of support, disaggregate company support for caregiving by different types of support in terms of expenditure and number of beneficiaries.
Corporate Publicly report country-by-country tax disclosure that includes metrics related to taxation revenues, assets, employment, pre-tax profits, taxes paid and the effective tax rate.
Labour Reveal collective bargaining coverage and trade union density by main countries rights of operation, and by affiliate and main suppliers; and publicly disclose supply chain factories, enterprises and producers, including employment and labour rights data.
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Corporate Move beyond partial to full disclosure related to multiple forms of corporate political political influence by providing data on both direct and indirect political and influence lobbying expenditures (including via trade associations), as well as by different levels of policy making (international, national, state/provincial and municipal), countries of operation, major affiliates, major recipients, and by major issue areas and SDGs. Disaggregate disclosure related to lobbying by specifying not only the broad issue area, but also the normative or regulatory intent of the intervention, including its relation to or alignment with the SDGs.
Main findings: Normative goals, targets or target ranges Regarding concrete normative goals associated with a meaningful interpretation of sustainable development, the discussion identifies a number of targets that companies could work towards. The point was made that sustainability norms may appear highly ambitious or aspirational. Such indicators, however, reveal the scope of the challenge, a company’s true position along the pathway to sustainable development and whether progress is meaningful. This information is vital for any company that adheres to the ethos of corporate social responsibility and is serious about sustainable development. It is also essential for the multiple stakeholders engaged in the movement for greater corporate accountability. Several targets or target ranges identified above include: • CEO-worker pay ratios in the region of 10–50 to 1 depending on sectors and institutional settings; • wage levels that meet the living wage; • decreases in the gender pay gap of 3 percent or more per annum, and a gender pay gap of less than 3 percent; • equal representation of women and men in the workforce; women’s representation above 40 percent at board and executive levels; • a corporate tax gap within the 0 to 5 percent range; • an increasing as opposed to declining trend in collective bargaining coverage, with the aim of achieving full coverage; • zero corporate political spending or spending not exceeding the USD 0.2 – 0.5 million range per annum in the case of large corporations; • regarding the revolving door, zero movement of personnel from the public to the private sectors during a two-year cooling off period.
The discussion in Part 2 also insists on the need to enhance user-friendly disclosure through time series data that reveal trends over time. A five-, 10- or even 20-year time horizon for several of the above indicators is far more revealing than an annual or two- to three-year snapshot. Time series data is important for revealing instances of contradictory performance—or red flags—discussed chiefly in Chapter 8. Such data allow stakeholders to better assess the validity of the seemingly positive developments in corporate sustainability metrics and indicators associated with fair remuneration, employment, labour rights and corporate political influence, as follows.
Fair Does compliance with minimum wage regulations and industry norms mask remuneration the fact that increases in nominal wages fall far short of increases in labour productivity, or do not translate into increased real wages, that is, when adjusted for inflation?
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Labour Do increasing rates of collective bargaining coverage among full-time employees rights occur in a context where the percentage share of full-time employees is declining in relation to subcontracted (non-unionized) labour? How do changing levels of full-time employment compare with those of revenues and profits? Such data may reveal whether economic growth supports or undermines growth in full- time employment. Are suppliers upgrading certain ESG standards in contexts of ongoing aggressive commercial policy and purchasing practices?
Corporate Do trends indicating a significant concentration of corporate power through political increases in market share signal increased corporate political influence? Does influence positive performance related to controls on political spending or increased lobbying for SDG-related issues mask significant lobbying for public policies that support business-as-usual?
Future work At various points this report has referred to ongoing challenges that confront the task of designing and promoting indicators for transformative change. It is hoped that the structural and contextualized perspective outlined in this research provides a foundation for future work to ensure that corporate sustainability accounting serves to effectively measure impacts and assess progress.
The UNRISD project behind this report has both complemented cutting-edge civil society and private sector initiatives in this field and highlighted the useful role of United Nations-led and interagency inquiry in promoting advanced practice. It is vital that organizations like UNRISD, the ILO, UNCTAD, UN Women, OHCHR, UNEP and specific initiatives such as the UN Global Compact, among others, come together in a more structured way to address ongoing blind spots, reprioritize issues, refine indicators, harmonize methods, promote user-friendly disclosure formats and identify normative targets.
Suggested areas of work for such a group include: • Forging a consensus on the relevance of the approach to sustainability disclosure and the five issue areas and related indicators highlighted in this research. • Examining other transformative blind spots that are flagged in the research but not examined in depth, such as the fair distribution of income and value added throughout the global commodity or value chain, and whether a company’s commercial policy and purchasing practices facilitate or undermine upgrading efforts in the supply chain. • Promoting granular and transparent disclosure, identifying those indicators where this is particularly important, for example, country-by-country tax disclosure, pay and promotion by occupational category, and supply chain performance. • Promoting user-friendly disclosure through time series data that allow stakeholders to view trends as opposed to annual snapshots. • Highlighting the need for disclosure and data related to contradictory performance trends and “red flags”. • Raising the bar and promoting greater consistency and harmonization of the methods used for calculating specific indicators, for example, CEO pay and CEO- worker pay ratios, the living wage, the gender pay gap, care support and corporate political spending. • Identifying normative targets or target ranges, related to thresholds and fair allocations, consistent with a transformative notion of sustainable development. • Examining the possibilities of time-bound targets that set a certain date for compliance, as is beginning to occur in the case of carbon emissions or as seen in the 2030 horizon for the SDGs.
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Acronyms
AFWA Asia Floor Wage Alliance ISSC International Social Science Council AOI areas of impact International Union of Food, Agricultural, Hotel, Restaurant, IUF Catering, Tobacco and Allied Worker’ Associations ASB/FRC Accounting Standards Board/Financial Reporting Council KPI key performance indicator BEPS base erosion and profit shifting MDG Millennium Development Goal CbC country by country MNE multinational enterprise CEO Chief Executive Officer MSC Marine Stewardship Council CFO Chief Financial Officer NFR non-financial reporting Conference of the Parties (in this case to the United Nations COP Framework Convention on Climate Change (UNFCCC) NGO non-governmental organization
CO2 Carbon dioxide OECD Organisation for Economic Co-operation and Development CPI corporate political influence OHS occupational health and safety CR corporate responsibility OHCHR Office of the High Commissioner for Human Rights CSR corporate social responsibility PAC political action committee EC European Commission PPP$ purchasing power parity (USD) EITI Extractive Industries Transparency Initiative PRI Principles for Responsible Investment EP&L environmental profit and loss ROI return on investment ESG environmental, social and governance SASB Sustainability Accounting Standards Board ETI Ethical Trading Initiative SBT science-based target EU European Union SDGs Sustainable Development Goals EUR Euro (currency) SEC Securities and Exchange Commission FLA Fair Labor Association SI sustainability indicator FSC Forest Stewardship Council SME small and medium-sized enterprise FTM Fair Trade Mark SOE state-owned enterprise FTSE Financial Times Stock Exchange Group SROI social return on investment G20 Group of 20 SSE social and solidarity economy GBP British pounds (currency) TBL triple bottom line GCFW Global Commission on the Future of Work TCFD Task Force on Climate-related Financial Disclosures GDP gross domestic product TI Transparency International GHG greenhouse gas TNC transnational corporation GIIN Global Impact Investing Network TTC total tax contribution GLWC Global Living Wage Coalition UK United Kingdom GPG gender pay gap UN United Nations GRI Global Reporting Initiative UNCTAD United Nations Conference on Trade and Development GSSB Global Sustainability Standards Board UNEP United Nations Environment Programme IBFWW International Federation of Building and Wood Workers UNGC United Nations Global Compact ICC International Chamber of Commerce UNIDO United Nations Industrial Development Organization ICT information and communications technology UNRISD United Nations Research Institute for Social Development IFA international framework agreements USD United States dollar IIRC International Integrated Reporting Council VND Vietnamese dong ILO International Labour Organization VoC varieties of capitalism IPPR Institute for Public Policy Research WBCSD World Business Council for Sustainable Development IR integrated reporting WEF World Economic Forum IRIS Impact Reporting and Investment Standards WFE World Federation of Exchanges ISO International Organization for Standardization WWF World Wide Fund for Nature
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List of Boxes, Figures, Tables
Boxes Box O.1. What is transformative change? 2 Box O.2. Some recent initiatives to improve corporate sustainability accounting 5 Box O.3. What does social science theory tell us? 6 Box O.4. Granularity 8 Box O.5. Stark facts about gender inequality in paid employment 13 Box O.6. Why should corporate political influence be of concern? 23 Box O.7. Ratcheting up CPI disclosure guidelines at RobecoSAM 24 Box 1.1. Impact Reporting and Investment Standards (IRIS) 40 Box 1.2. GRI Sustainability Reporting Guidelines: What has changed over time? 42 Box 1.3. Oxfam’s Behind the Brands Scorecard 44 Box 2.1. Enhancing disclosure and reporting through digital innovations 57 Box 3.1. Net Positive Principles 62 Box 5.1. Why does inequality matter? 84 Box 6.1. Gender-specific SDG targets and goals 95 Box 6.2. Ratcheting up care at L’Oréal 103 Box 6.3. Women in Finance Charter 110 Box 7.1. Recent tax investigations and rulings in the European Union 121 Box 7.2. Recent tax-related sustainability reporting initiatives 122 Box 8.1. Ratcheting up labour rights in Unilever 131 Box 9.1. 2019 Lobbying disclosure resolution filed at ExxonMobil 143 Box 9.2. CPI at Boeing Co. 145 Box S.1. Assessing performance in context 151 Figures Figure O.1. Minimum, living and actual wages per month, USD equivalent (Selected countries, 2020) 12 Figure O.2. Representation (%) of men and women in the corporate pipeline in relation to gender parity (United States and Canada, 2015 and 2019) 15 Figure 3.1. Sample MultiCapital Scorecard 64 Figure 5.1. Minimum, living and actual wages per month, USD equivalent (Selected countries, 2020) 91
Figure 6.1. Representation (%) of men and women in the corporate pipeline in relation to gender parity (United States and Canada, 2015 and 2019) 100 Figure 6.2. Earnings relative to pre-child earnings (Denmark and United States, 2015) 101 Figure 8.1. Supply chain mapping in the United States fashion industry 129 Figure 9.1. Corporate and trade union spending on campaign funding (US Congress) 138 Tables Table O.1. CEO pay to average income ratio (Selected countries, 2015-2016) 10 Table O.2. Vodafone Group countries of operations (Top three countries by economic activity and by profits, millions of euros, 2016-2017) 17 Table O.3. Collective bargaining coverage at Total and Electrolux 21 Table 1.1. The rise of multistakeholder institutions and initiatives 37 Table 1.2. The 10 UN Global Compact Principles 38 Table 4.1. Leading emitters with increasing emissions trend and high emissions intensity performance 81 Table 4.2. Exxon Mobil emissions 82 Table 5.1. CEO pay to average income ratio (selected countries) 2015-2016 86 Table 5.2. Variations in tax rate by pay ratio band (California Senate Bill 1398) 87 Table 5.3. Minimum wage versus living wage 92 Table 6.1. Gender mix and pay disparity among hierarchy levels 99 Table 6.2. Work-life balance and care support in the United States and Canada, % of companies offering 102 Table 6.3. Gender balance compared: Top performers versus the rest (%) 109 Table 6.4. Women’s representation at board and executive levels, by leading countries 110 Table 6.5. Representation of women across selected industries (United States and Canada) 111 Table 7.1. Estimates of the fiscal effects of BEPS 116 Table 7.2. Vodafone Group countries of operations (Top three countries by economic activity and by profits, millions of euros, 2016-2017) 119 Table 8.1. Total and Electrolux: Collective bargaining coverage 127 Table 8.2. PUMA: Supply chain workers covered by a collective bargaining agreement 128 156 CORPORATE SUSTAINABILITY ACCOUNTING: WHAT CAN AND SHOULD CORPORATIONS BE DOING?
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Annex 1: European Commission Respect for human rights Guidance on Non-Financial Reporting • Occurrences of severe impacts on human rights relating to its activities or decisions Guidance provided by the European Commission • Process for receiving and addressing (2017) for companies that must comply with the 2014 complaints, and mitigating and providing EU Directive on non-financial reporting includes the remedies to human rights violations following principles and examples of key performance • Operations and suppliers at significant risk of indicators (KPIs) related to core thematic areas. human rights violations • Processes and measures for preventing Six principles should guide disclosure and reporting: trafficking in human beings for all forms of
Annexes • Disclose material information exploitation, forced or compulsory labour • Fair, balanced and understandable and child labour, precarious work, and unsafe • Comprehensive but concise working conditions, in particular as regards • Strategic and forward-looking geographic areas at higher risk of exposure to • Stakeholder orientated abuse • Consistent and coherent • Accessibility of facilities, documents and websites to people with disabilities The guidance note provides examples of possible • Respect for freedom of association KPIs related to various thematic areas, including the • Engagement with relevant stakeholders following. Anti-corruption and bribery matters Environmental matters • Anti-corruption policies, procedures and • Energy performance and improvements in standards energy performance • Criteria used in corruption-related risk • Energy consumption from non-renewable assessments sources and energy intensity • Internal control processes and resources • Greenhouse gas emissions in metric tonnes of allocated to preventing corruption and bribery
CO2 equivalent and greenhouse gas intensity • Employees having received appropriate training • Emissions of other pollutants (measured in • Use of whistleblowing mechanisms absolute value and as intensity) • Number of pending or completed legal actions • Extraction of natural resources on anti-competitive behavior • Impacts and dependencies on natural capital and biodiversity Supply chains • Waste management (e.g. recycling rates) A company may consider disclosing material infor mation and KPIs on aspects such as monitoring Social and employee matters suppliers on: • Gender diversity and other aspects of diversity • labour practices, including child labour and • Employees entitled to parental leave, by gender forced labour, precarious work, wages, unsafe • Workers who participate in activities with a working conditions (including building safety, high risk of specific accidents or diseases protective equipment, workers’ health); • Number of occupational accidents, types of • trafficking in human beings and other human injury or occupational diseases rights matters; • Employee turnover • greenhouse gas emissions and other types of • Ratio of employees working under temporary water and environmental pollution; contracts, by gender • deforestation and other biodiversity risks; and • Average hours of training per year per • monitoring the company’s impact on employee, by gender suppliers, for instance, its payment terms and • Employee consultation processes average payment periods. • Number of persons with disabilities employed Source: https://eurlex.europa.eu/legalcontent/EN/ TXT/?uri=CELEX:52017XC0705(01)
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Annex 2: SASB Accounting Criteria SASB Universe of Sustainability Issues and Universe of Sustainability Issues Over time, SASB has refined its universe of sustainability issues to identify those that are likely to SASB Accounting Criteria have material impacts on companies in an industry. The Sustainability Accounting Standards Board (SASB) The SASB Conceptual Framework identifies 30 considers the following set of criteria when evaluating sustainability topics organized under the following five potential metrics to measure performance on aspects of sustainability dimensions. each sustainability topic. • Fair representation: A metric adequately and Environment accurately describes performance related to the • GHG emissions aspect of the disclosure topic it is intended to • Air quality address, or is a proxy for performance on that • Energy management aspect of the disclosure topic. • Fuel management • Useful: A metric will provide useful • Water and wastewater management information to companies in managing • Waste and hazardous materials management operational performance on the associated • Biodiversity impacts topic and to investors in performing financial analysis. Social capital • Applicable: Metrics are based on definitions, • Human rights and community relations principles, and methodologies that are • Access and affordability applicable to most companies in the industry • Customer welfare based on their typical operating context. • Data security and customer privacy • Comparable: Metrics will yield primarily (a) • Fair disclosure and labelling quantitative data that allow for peer-to-peer • Fair marketing and advertising benchmarking within the industry and year- on-year benchmarking for an issuer, but also Human capital (b) qualitative information that facilitates • Labor relations comparison of disclosure. • Fair labor practices • Complete: Individually, or as a set, the • Diversity and inclusion metrics provide enough data and information • Employee health, safety, and well-being to understand and interpret performance • Compensation and benefits associated with all aspects of the sustainability • Recruitment, development, and retention topic. • Verifiable: Metrics are capable of supporting Business model and innovation effective internal controls for the purposes of • Lifecycle impacts of products and services data verification and assurance. • Environmental and social impacts on assets and • Aligned: Metrics are based on those already operations in use by issuers or derived from standards, • Product packaging definitions, and concepts already in use by • Product quality and safety issuers, governments, industry associations, and others. Leadership and governance • Neutral: Metrics are free from bias and value • Systemic risk management judgment on behalf of the SASB so that they • Accident and safety management yield an objective disclosure of performance • Business ethics and transparency of payments that investors can use regardless of their • Competitive behavior worldview or outlook. • Regulatory capture and political influence • Distributive: Metrics are designed to yield a • Materials sourcing discernible range of data for companies within • Supply chain management an industry, or across industries, allowing users to differentiate performance on the topic or an Source: https://www.sasb.org/wp-content/uploads/2017/02/ aspect of the topic. SASB-Conceptual-Framework.pdf
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Annex 3: Oxfam’s Criteria for Gauging Strong and Weak Performance
In order to rate the agricultural sourcing policies Farmers of the world’s 10 largest food and beverage corporations, Oxfam refers to the following Top indicators to assess best and worst performers • Unilever (8): understands farmers’ issues, in relation to seven issue areas. The numbers in relatively enhanced level of support; brackets indicate the rating on a scale up to 10. publishes its efforts to support farmers • Nestlé (7): good disclosure about its Land involvement with small-scale farmers; working with its suppliers to tackle issues Top faced by small-scale farmers; requires • Coca-Cola (8): policy on zero tolerance for suppliers to support farmers’ organizations land grabs; principle on fair compensation and grievance mechanism where land Bottom rights have been violated • Associated British Foods (ABF) (3): failure • Nestlé (8): zero tolerance policy on land to consider how it can support farmers grabs; requires suppliers to support FPIC of through guidance and requirements for indigenous and local communities; commits its own suppliers to advocate sourcing country governments to • Coca-Cola (3): lack of credible implement strong land tenure commitments to support small-scale farmers from whom it sources Bottom • Danone (3): does too little to address • Danone (2): does not commit to zero hardships that vulnerable suppliers tolerance; does not require suppliers to encounter in producing the commodities consider how land affects lives that it sources • General Mills (3): fails to identify the Women numbers of small-scale farmers it sources from; does not ask suppliers to protect Top farmers’ rights • Coca-Cola (6): running projects with • Pepsico (3): lack of credible commitments women in rural areas; pledging support towards supporting small-scale farmers for women farmers from whom it sources • Kellogg’s (6): gender impact assessment throughout its supply chain to determine Workers where women are at highest risk and in which commodities Top • Mondelez (6): decent gender analysis and • Unilever (8): its Responsible Sourcing implementation; impact assessment and Policy sets out new requirements for its action plan suppliers in relation to workers’ rights • Unilever (6): impact assessment in Vietnam addressing women’s labour rights Bottom • Danone (3): lack of information; doesn’t Bottom know how many people are in its supply • Danone (2): lack of evidence as to how chain a new women’s empowerment principle • General Mills (3): need for a constructive translates into actual progress for women and ongoing dialogue with its workers’ farmers union
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• Kellogg’s (3): need for a constructive and Bottom ongoing dialogue with the union that • Mondelez: (4) little info about its sourcing represents workers in the supply chain volumes, countries and buying agents, • Pepsico (3): no apparent system for taxation and compliance of suppliers with identifying high risk countries for forced its code labour and low wages • ABF (3): info on suppliers and auditing is limited and no info on lobbying practices Oxfam adds that all companies need to do much more to ensure workers are paid a living wage. Water
Climate Top • Nestlé (7): supports major water Top initiatives; most specific guidance on • Unilever (9): strong policies on water management deforestation and palm oil; guidelines • Unilever (7): understands the value of for suppliers; engages government to take water and the importance of suppliers action reporting on water management • Kellogg’s (8): has committed to reduce all its supply chain emissions, require Bottom suppliers to publish those emissions; • ABF (3): limited progress with setting helps smallholders adapt to a changing targets and disclosing company’s climate; and publicly calls on peers, other proportion of its water footprint used industry sectors and governments to do for agricultural purposes; no official the same recognition of the human right to water • Nestlé (8): solid policies on deforestation, • Mondelez (2): despite recognizing the palm oil, agricultural emissions and importance of water and reporting advocacy engagement publicly, generally poor performance
Bottom • Mondelez (5): needs to strengthen renewable energy goals, requirements for suppliers, and support for small scale farmers to build resilience • ABF (4): none of ABF’s companies set emissions targets for its suppliers
Transparency
Top • Nestlé (7): reveals where it sources from, how much it sources for key commodities, including some key suppliers; excellent sustainability reporting • Unilever (7): relatively high level of transparency on suppliers and taxation; only company to disclose its policy on taxation; progress in disclosure on sources of origin and compliance of suppliers with its code Source: https://www.behindthebrands.org/issues/
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Annex 4: Mainstream Innovations to and external stakeholders need to be addressed, Improve Sustainability Accounting whether or not they are perceived as important by the reporting organization. To help reporting Multiple initiatives are under way to improve organizations better understand the challenging aspects of sustainability accounting and reporting and “inconsistently understood” notion of related to complexity, comparability, credibility, boundary,255 the GRI Standards simplify the relevance and materiality, as well as alignment concept while also aligning it with important with the SDGs. In addition to the initiatives international references such the OECD identified in Chapters 1 and 2, these include: Guidelines for Multinational Enterprises and the • GRI Sustainability Reporting Standards United Nations Guiding Principles on Business • Action Platform Reporting on the SDGs and Human Rights. Organizations are now • SDG Compass responsible for both direct and indirect impacts • World Benchmarking Alliance via business relationships with customers or • Corporate Reporting Dialogue suppliers. • UNCTAD and International Standards of Accounting and Reporting (ISAR) Action Platform Reporting on the SDGs • Science-Based Targets initiative To promote better reporting alignment, the UN • CDP and Climate Disclosures Standards Global Compact and GRI have partnered to Board develop best practices for incorporating SDG • World Federation of Exchanges ESG reporting into current processes associated with Guidance and Metrics both the UN Global Compact Principles (see • EC Guidance on Non-Financial table 1.2) and the GRI Reporting Standards. Reporting The PRI initiative, which targets the financial services sector, is another partner in the platform. GRI Sustainability Reporting Standards The Action Platform invites leading business GRI periodically launches a new generation of representatives to become part of the Action reporting guidelines. At the time of writing, the Platform by joining a Corporate Action Group Global Reporting Standards, introduced in 2016, (CAG). The CAG is a peer learning forum to share constitute the latest iteration, one which aims SDG practices, identify best practices and provide to improve reporting relevancy, clarify reporting feedback that may be instrumental in new guidance requirements and content, and simplify language. to improve reporting by increasing comparability They are organized into a set of interrelated, and relevancy to various stakeholders, including modular standards bringing together the G4 investors and governments. In 2018, GRI and the Guidelines and the G4 Implementation Manual. UN Global Compact released the report, “Business Organizations reporting “in accordance” apply Reporting on the SDGs,” which aims to improve three universal standards and select from 33 how firms measure and report their impact on the topic-specific standards to report on material SDGs by enhancing transparency, credibility and ESG topics. Reporters can comply with entire accountability. The publication is also intended to standards or just cover individual topics. If only address the “stumbling block” represented by the using selected standards, the report is classified absence of a uniform methodology for reporting as “GRI-referenced”. Reporters can now include contributions to the SDGs and achieving the additional disclosures from frameworks like SASB 2030 Agenda. In the future, the Action Platform to report their material topics. will release recommendations on improved SDG data aggregation and analysis to understand 255 See https://www.global 256 reporting.org/standards/ To simplify the disclosure process, the revised corporate impacts related to the SDGs. questions-and-feedback/ format for reporting clearly distinguishes materiality-and-topic- between requirements (indicated by “shall”), The guidance uses a Principled Prioritization boundary/ recommendations (“should”) and guidance. process to encourage companies to focus on 256 See https://www.un globalcompact.org/ The Standards have a stronger focus on the highest priorities that are material for their docs/issues_doc/ determining materiality, emphasizing that all business rather than select or “cherry-pick” the development/UNGC-GRI- action-platform-reporting- impacts considered significant by both internal easiest SDGs and targets on which to report. on-the- SDGs.pdf
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Organizations are called to consider risks to launched the WBA, which will develop free, people and the environment and beneficial SDG- publicly available benchmarks that compare and related products, services and investments they rank company performance on the SDGs.258 By can offer to achieve the SDGs. Currently, there benchmarking performance, the initiative aims are more than 40 firms working with the platform to increase transparency and accountability for and about 35 representatives from civil society, the businesses, and empower consumers, investors, UN, and governments on the advisory committee governments and civil society to make decisions (GRI and UN Global Compact 2018:7). on where and how to spend money or allocate funds. The results will identify best and worst SDG Compass performers and be used to facilitate dialogues Created in 2015 by GRI, the UN Global between investors and companies with the aim of Compact and the World Business Council for promoting behavioural change. The WBA expects Sustainable Development, the SDG Compass is to have assessed 2,000 companies by 2023. Five a tool designed to help explain how the SDGs new benchmarks related to the following areas affect business and assist firms in identifying GRI are being developed in collaboration with over 70 Standards that can be employed to demonstrate WBA Allies: their contribution to the SDGs. • Climate and energy; • Seafood; Users can view how the GRI Standards are • Food and agriculture; mapped against the SDGs in the document • Gender equality and empowerment; “Business Reporting on the SDGs: An Analysis • Digital inclusion. of the Goals and Targets.257 The online Inventory of Business Indicators maps existing ones against Corporate Reporting Dialogue the SDGs to enable firms to research commonly- Launched in 2014, the Corporate Reporting employed indicators that may help measure and Dialogue is convened by the IIRC and brings report contributions to the SDGs. A filter allows together GRI, Climate Disclosures Standards exploration by SDG Goal or target or business Board (CDSB), SASB with the International theme such as equal opportunity or economic Financial Reporting Standards (IFRS), the performance and air pollution. As well, new Financial Accounting Standards Board (FASB), business indicators for the SDG Compass website the Carbon Disclosure Project (CDP), and the may be suggested. For instance, when entering International Organization for Standardization SDG Goal 1 (End poverty), the inventory displays (ISO). The initiative’s overarching objectives are the germane SDG Target (1.4: By 2030, ensure to communicate about the ongoing development that all men and women, in particular the poor of reporting frameworks, standards and related and the vulnerable, have equal rights to economic requirements; identify practical means to align resources, as well as access to basic services, and rationalize these initiatives; share information ownership and control over land and other and use a common voice to engage important forms of property, inheritance, natural resources, regulators. 257 Published by GRI and the UNGC, including appropriate new technology and financial the GRI Standards, UN services, including microfinance), the business The Dialogue’s Better Alignment Project has so Global Compact-Oxfam Poverty Footprint, CDP theme (access to financial services), the type of far led to the Landscape Map and a Statement 2017 Climate Change indicator (sector-specific) and the GRI indicator of Common Principles of Materiality.259 These and others. source and link (GRI G4 Financial Services Sector documents underscore what reporting standard 258 See https://www. Disclosures), indicator description (access points setters and framework providers hold in common worldbenchmarking alliance.org/wp-content/ in low-populated or economically disadvantaged and are meant to help direct companies towards uploads/2018/09/WBA- areas by type) and indicator ID. frameworks most material to their operations. Press-release-24-Sep.pdf In late 2019, the Dialogue aims to publish a 259 See https://corporate reportingdialogue. World Benchmarking Alliance (WBA) document depicting the linkages of the Task Force com/wp-content/ In 2018 Aviva, the Index Initiative and the UN on Climate-related Financial Disclosures (TCFD) uploads/2016/03/ Foundation, with support from the governments Recommendations to SASB, GRI, CDP and Statement-of-Common- Principles-of-Materiality1.pdf of Denmark, the Netherlands and the UK, CDSB frameworks and the connections among
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the frameworks. The publication will identify how they need to reduce greenhouse gas emissions and non-financial metrics relate to financial outcomes at what rate. A “science-based” target is one in and explain how the TCFD recommendations line with the level of decarbonization necessary 260 See www.corporatere 260 should be integrated into mainstream reports. to keep the rise in global temperature below portingdialogue.com two degrees Celsius compared to pre-industrial 261 See UNCTAD 2018 and isar. UNCTAD and International Standards temperatures.264 unctad.org. Established by ECOSOC in 1982, of Accounting and Reporting (ISAR) ISAR is the UN focal point The UN Conference on Trade and Development The Science-based Targets initiative (SBTi) brings devoted to accounting and reporting issues; its mission (UNCTAD) has long been engaged in trying to together CDP, World Resources Institute, WWF is to assist countries in lower the transaction costs of firms by developing and the UN Global Compact and independently implementing international sets of environmental and social reporting variables examines and verifies emissions reduction targets best practices in corporate reporting and disclosure which are clear and concise, and focus on concrete using the most recent climate science. As of to enable investment flows performance rather than management processes September 2018, nearly one in five Fortune Global and economic development. ISAR has been working and policies (UNCTAD 2004, 2008). In the face of 500 corporations has pledged to set science-based towards this objective in various conceptual and technical issues related to targets. Some 509 companies are now taking partnership with the UN Environment Program and achieving consistency, comparability and usefulness science-based climate action and 162 firms have the UN Department of regarding SDG corporate reporting, UNCTAD agreed to science-based targets.265 Companies Economic and Social Affairs, as well as in cooperation recently compiled a set of 33 indicators for now setting targets include Levi Strauss, Mars, with other organizations, companies through its Intergovernmental Working Kraft Heinz, Yamaha Motor Company, brewer including the ILO, the IIRC, Group of Experts on International Standards of AB InBev, India’s Dalmia Cement, clothing firm GRI, the International Accounting Standards Board 261 Accounting and Reporting (ISAR). As noted PVH (Calvin Klein and Tommy Hilfiger), cloud and International Federation by James Zhan, Director of Investment and computing firm Salesforce and the engineering of Accountants. Enterprise at UNCTAD, “Achieving global goals... company AECOM. Indeed, businesses from 38 262 See https://unctad.org/ meetings/en/Presentation/ logically requires globally comparable monitoring countries and adding up to one-eighth (nearly ciiisar34th_Zhan_en.pdf indicators. Addressing this challenge during USD 10 trillion or similar to the NASDAQ) of 263 “Enhancing the compa its [2016] quadrennial conference...UNCTAD total global market capitalization currently use rability of sustainability launched its initiative towards developing a climate science.266 reporting: Selection of core indicators for entity reporting core set of common baseline indicators to assist on the contribution towards enterprises in communicating their performance CDP and Climate Disclosures the attainment of the Sustainable Development towards achievement of the SDGs to a wide Standards Board Goals”, October 2018. range of stakeholders in a reliable and consistent Working with investors, companies, cities, states https://unctad.org/system/files/ manner”.262 and regions, CDP aims to make environmental official-document/ciiisard85_ en.pdf reporting and risk management a business 264 See https:// Building upon earlier work by the norm, driving disclosure and action towards sciencebasedtargets.org/what- Intergovernmental Working Group of Experts in sustainability. Since 2001, more than 5,800 is-a-science-based-target/ 2016 and 2017, UNCTAD’s recent work includes companies have publicly disclosed environmental 265 See science-based targets website at https:// looking at the challenges around “reporting information through CDP and 7,000 plus firms sciencebasedtargets.org/ boundaries, the balance between universality and responded to CDP’s questionnaire on climate companies-taking-action/. materiality, the relationship between consolidated change, forests, water, and supply chains.267 The Accessed 10 January 2018. and legal entity reporting, external verification data that is collected by CDP is translated into 266 For more information, see https://sustainablebrands. and assurance, corporate governance indicators detailed analysis on key environmental risks, com/read/new-metrics/gcas- and the alignment of accounting data and opportunities and impacts.268 8-of-global-market-cap-now- 263 committed-to-science-based- statistical indicators.” targets To encourage consistency and to clarify to 267See https://www.cdp.net Science Based Targets initiative (SBTi) stakeholders where requirements are similar 268 CDP’s recent research In the wake of the Paris agreement, the number of and information can be used to fulfill the needs found that 100 “carbon corporations committing to emissions reduction of different reporting purposes, CDP provides majors”—corporations and state-owned fossil fuels and has grown rapidly. The swell in interest in science- a table that cross references their framework cement producers—have based targets (SBTs) is due likely to changes in with common reporting provisions like SASB, created just over 50 percent CDP (formerly Climate Disclosure Project) scoring GRI, UNGC, German Sustainability Code, of GHG emissions since the industrial revolution methodology. SBTs help firms specify how much Integrated Reporting as well as various regulatory (Economist Nov 17th 2018).
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regimes such as France’s Grenelle II, the EU to represent the best sustainability practice and Non-Financial Reporting Directive and the UK cover indicators including human rights, climate Companies Act.269 risk mitigation, gender pay, emissions, and ethics and anti-corruption.272 CDP hosts the Secretariat of the Climate Disclosure Standards Board (CDSB)—an EC Guidance on Non-Financial Reporting international consortium of environmental NGOs In 2017, the European Commission issued and businesses to promote the alignment of the guidance for companies that must comply with the corporate mainstream reporting model to equate 2014 EU Directive on Non-Financial Reporting.273 financial capital and natural capital. CDSB notes While stating that “a company may rely on high that “unacknowledged and unresolved tensions quality, broadly recognised national, EU-based or in corporate environmental and natural capital international frameworks when preparing its non- accounting and disclosure practice can produce financial statement”, the guidance note identifies variation in the quantity and quality of information, six principles and examples of key performance which in turn undermines confidence in science, indicators (KPIs) related to core thematic areas policies, markets and corporate reporting”. The (see Annex 1). The document also notes that CDSB Framework for reporting environmental “the non-binding guidelines could represent information, natural capital and associated best practice for all companies that disclose non- business impacts sets out an approach to disclosing financial information, including other companies environmental data in mainstream reports (annual, not included in the scope of the Directive.” Form 10-K/20-F and equivalent).270 The content of company non-financial statements The CDP also partners with the Climate Group are expected to include or specify the following: to lead RE100, an initiative that brings together 1. a brief description of the undertaking’s influential global businesses committed to 100 business model per cent renewable power, with three-quarters 2. a description of the policies pursued having committed to do so by 2030, if not earlier. by the undertaking in relation to They are also proactive in environmental advocacy those matters, including due diligence to change public policy. processes implemented 269 See https://www.cdsb. net/sites/cdsbnet/ 3. the outcome of those policies files/cdsb_making_the_ World Federation of Exchanges ESG 4. the principal risks related to those connections.pdf Guidance and Metrics matters linked to the undertaking’s 270 This paragraph draws To promote greater harmonization, comparability operations including, where relevant on https://www.cdsb. net/harmonization/419/ and decision-useful information for investors, in and proportionate, its business cdsb-connects-corporate- 2018 the World Federation of Exchanges (WFE) relationships, products or services non-financial-reporting- approaches. See also reworked its sustainability reporting guidance for its which are likely to cause adverse https://www.cdsb.net/ more than 35 member stock exchanges. The WFE impacts in those areas, and how the sites/cdsbnet/files/ cdsb_framework_for_ ESG Guidance and Metrics provide a reference undertaking manages those risks reporting_environmental_ point for exchanges that want to incorporate, 5. material narratives and indicator-based information_natural_ capital.pdf or require, ESG reporting in their markets. The disclosures, commonly referred to as revised metrics reflect updates such as the SDGs key performance indicators (KPIs) 271 See https://www.global reporting.org/SiteCollec and the Task Force on Climate-related Financial 6. information to the extent necessary for tionDocuments/2018/ Disclosures (TCFD) Recommendations. The an understanding of the undertaking’s Mapping_WFE-ESG-Met rics_GRIStandards.PDF metrics are mapped against the GRI Sustainability development, performance, position 271 272 Reporting Standards in a linkage document. and impact of its activity, relating to, See www.sustainability- reports.com, 2 October As a result, firms do not need to adopt extra as a minimum, the following thematic 2018. reporting metrics. The GRI is referenced by 36 matters: environmental, social and 273 See European stock exchanges around the world. This revision employee matters, respect for human Commission 2017, https://ec.europa. enables companies to use the GRI Standards while rights, anti-corruption and bribery eu/info/publications/ also being in accordance with WFE’s 30 baseline matters and material information on non-financial-reporting- guidelines_en ESG metrics (see Annex 7). These metrics purport supply chain matters.
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Annex 5: The Potential and Limits blockchain pilot project—designed to improve of Digital Innovations supply chain sustainability—Unilever, Sainsbury’s, packaging company Sappi, three banks (Barclays, Digital innovations have the potential to address BNP and Standard Chartered) and several several key issues plaguing CR disclosure and technology start-ups are collaborating to create reporting. These challenges include easier a system to follow and verify the contracts for comprehension and enhanced stakeholder up to 10,000 Malawian tea growers. To this end, engagement through, for example, interactive the firms are using Provenance’s blockchain- infographics and videos. Emerging technologies based traceability tools and Halotrade’s supply may also improve transparency, data timeliness chain information processing to help with data and relevance in the reporting process. As the GRI analysis (Malpani 2018). The project records to suggests, this may also lead to greater stakeholder a blockchain data regarding the quality and unit influence in corporate governance (GRI 2016:22). price of farmers’ produce as well as sustainability- Technologies involving big data, artificial related crop metrics. The recorded information can intelligence and blockchain can now collect then be accessed by all project partners, including and analyse sustainability statistics and reveal banks that appreciate that the data is verifiable. connections among very complex and opaque Although such an initiative may ignore a number data. With increasing processing power and of key issues—not least the fairness of the process accessibility, big data analytics can help monetize for determining prices in contexts where farmers externalities and impacts and furnish a meta view of have weak bargaining power274—producers can be sustainability reporting through clearer and better incentivized to employ sustainable agricultural integrated measurement and analysis of hitherto practices through better borrowing terms or intangible ESG indicators (Amesheva 2017). preferential pricing.
Importantly, these innovations can also address Other recent examples of companies employing issues concerning the trustworthiness of blockchain technology include diamond company sustainability data. Khouhizadeh and Sarkis De Beers that uses a tool called Tracr to monitor (2018:1-2) suggest that among all technological the trajectory of diamonds from mines—through developments, blockchain technology has profound to cutters and polishers—to ensure that they implications for supply chain sustainability. are not being used in conflicts (Bhattacharyya Describing blockchains as “decentralized databases 2018). Everledger also uses the technology to or ledgers of records that are shared among verify the provenance of diamonds in “a digital networks and supply chain participants”, the expression of the Kimberley Process except that researchers observe that “unlike other business it replaces traditional record-keeping with the information technologies, blockchain uses a blockchain” (Davies 2018:2). As Davies suggests, unique data structure that stores data as a chain easier automation may well improve the process of blocks. Once a new transaction is recorded on of supply-chain certification. He also notes that the system, it builds a block that is linked to the since certification information moves with the previous blocks, creating a chain”. At the heart of diamonds, and can be combined with current the technology is decentralization: “Decentralized labelling methods, it may also be easier for emerging consensus is the core of the blockchain, which markets to participate in the trade in legitimate utilizes various algorithms such as proof of work ways (Davies 2018:3). and proof of stake to confirm the reliability of a recorded transaction” (ibid.). The fact that records In their study of the potential of blockchain are also time-stamped increases their traceability applications to contribute to the SDGs, Rocamora and reliability, assuming of course, that data quality and Amellina (2018) argue that while presently is adequate, which may not always be the case. more trials of the technology are in the business and financial sectors, applications in the public and Enhanced trust, engendered by blockchain climate change sectors present greater possibilities 274 We are grateful to Raymond Saner for technology, is one attribute that underpins to positively impact the achievement of the SDGs this observation. its application in supply chains. In a year-long in the long term. They contend that blockchain
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applications are most strongly connected to SDG Annex 6: Learning from 8 (decent work and economic growth), SDG 9 Social Science Theory and (industry, innovation and infrastructure), SDG 10 Multidisciplinarity (reduced inequalities) and SDG 16 (peace, justice and strong institutions). The researchers submit While it is increasingly recognized that science- that this “can be explained by the fact that most based thinking and evidence must inform blockchain applications could foster economic corporate sustainability disclosure and reporting, growth and innovation, improve the transparency this tends to apply only to the environmental and accountability of organizations and empower dimension and involve primarily the natural small economic actors and vulnerable populations” sciences and, more specifically, climate science. (Rocamora and Amellina 2018:6). As noted in the following examples, social science theory and knowledge drawn from multiple While digital innovations present opportunities subdisciplines and schools of thought can play to improve the quality of CR disclosure and an important role in identifying issue areas and reporting, their potential disadvantages are also indicators that are key from the perspective of apparent. Increasingly engaging reporting formats transformative change. may be more attractive to read, or even watch, but such communication methods remain susceptible Ecological economics suggests that the solution to charges of superficiality if they fail to also to global warming requires living and producing faithfully represent where the firm can improve its within ecological boundaries (Raworth 2017) performance. And while Rocamora and Amellina and deep changes in patterns of investment, see considerable promise in blockchain technology, production, consumption and economic growth they also caution that (Daly 2013). It also highlights the importance of the use of blockchain for virtuous purposes distributive justice for sustainable development should not be seen as a given… Blockchain (Martinez-Alier 2002). Tim Jackson (2009) argues is likely to become a central element of that it is not enough to focus on the question of this [Fourth Industrial] revolution, with resource intensity or “relative decoupling”, i.e. economic and social impacts on par the goal of ensuring that the rate of growth of with the invention of the Internet …this emissions or physical throughput is slower than revolution needs to be guided by a digital the rate of economic growth of the firm. This may governance framework in order to ensure not do anything to solve the climate crisis. What that blockchain technology is designed by is required is “absolute decoupling”, i.e. absolute and for people (2018:8). reductions in carbon emissions. Furthermore, the goal of living within our ecological boundaries calls Khouhizadeh and Sarkis (2018) echo this cautious for an assessment of whether firms are i) cognizant optimism, suggesting that we have yet to see of the carrying capacities of the sources of natural “whether blockchain technology is a true disruptive assets they are using, and ii) whether the volume social innovation, or is another affectation of of the natural resources they are using is not only incremental technology with limited strategic sustainable but also fair and proportionate in significance for sustainable supply chains” (p.14). relation to the needs and responsibilities of other Furthermore, as Ngai-Ling Sum (2010) argues user groups (Thurm et al. 2018). Yet current ESG “surveillance” technologies are likely to skew inter- disclosure does not effectively address this issue, 275 275 For example, see firm power relations within value chains even if at all. Rather, assessments of environmental McElroy (2017), who more towards the corporations that dominate such responsibility tend to focus either on the quality refers to the need for chains. More generally, Bendell (2018) cautions of a company’s environmental management the GRI framework to address the issues of that the governance associated with blockchain, system and/or resource intensity. “thresholds” (carrying like some earlier technologies, may exacerbate the capacities) and “allocations” (fair and very inequalities the 2030 Agenda is designed to To guard against the possibility, highlighted by proportionate shares address. Piketty (see below), that inequality will increase in of responsibility to maintain carrying contexts of declining growth, Jackson and Victor capacity). also argue that:
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Protecting both the quality and the quantity nurturing of a particular capability, or set of of labour needed in the economy against capabilities. For some capabilities, the most the incursions of capital, constitutes an important means will indeed be financial important avenue of opportunity for resources and economic production, but structural change in pursuit of sustainability. for others it may be particular political Instead of a relentless pursuit of ever- practices and institutions, such as effective increasing labour productivity, economic guarantees and protections of freedom of policy would aim to protect employment as thought, political participation, social or a priority and recognize that the time spent cultural practices, social structures, social in labour is a vital component of the value institutions, public goods, social norms, of the activity. The suggestion here is that and traditions and habits. there are employment opportunities to be had by protecting the quality and intensity The capabilities approach suggests: (i) the of people’s time in the workplace (2014:20). imperative of addressing multiple dimensions of corporate behavior and structural conditions Other aspects, noted by UNCTAD’s Trade and that affect people’s “functionings” (the basic Environment Review (Hoffmann 2013) in relation objectives people set such as having a good job, to agricultural production, relate to a shift from being safe, healthy, etc.) and “capabilities” (what high external input monoculture methods to an people are able to do given the freedoms and “ecological intensification” approach involving resources they have); (ii) the need to develop a regenerative production systems centred on small- culture of ethics within corporate structures, and scale farming and multifunctional agriculture. not simply at the level of a CSR office or CEO Such an approach also involves the shortening of concerned with corporate sustainability; and (iii) economic circuits of production and trade, which the freedom and ability to control one’s own contrasts with the conventional lengthening of environment through human agency such as circuits under globalization, as corporations seek the effective participation in relevant decision- out production sites where labour, regulatory and making processes, activating labour rights and other costs are lower. economic empowerment associated with the ownership of assets. Relating this approach to the Ecological economics tells us that the current SDGs, Bebbington and Unerman (2018) note: focus within corporate sustainability discourse “for accounting researchers, the SDGs prompt and the practice of “do no harm” needs to be a re-consideration of the social contract basis superseded by one that “must replenish the fast- for determining corporate social responsibilities depleting environmental resources we rely on (embedded in Rawls). … The SDGs’ emphasis on today” or what has been labelled the “net positive” ‘dignity and justice’…makes exploration of the approach (Forum for the Future et al. 2014). capabilities approach highly pertinent.”
The capabilities approach, associated, in The field of psychology provides pointers particular, with the work of Amartya Sen (1999) related to conditions of decent work and job and Martha Nussbaum (2003), highlights the satisfaction. Frederick Herzberg’s (1959, 1968) multidimensional nature of poverty and well- Motivation-Hygiene or Two Factor theory, for being and the role of people’s opportunities “to example, identifies different determinants of do and be what they have reason to value”. It job dissatisfaction and satisfaction: “lower level” also draws attention to a range of structural and conditions needed to survive, so-called hygiene political conditions that are often bypassed within factors, and “higher level” conditions to grow the field of MDR. psychologically or so-called “motivators”. While subject to various criticisms, this analysis has been As Ingrid Robeyns (2016) observes, with this influential in the field of management and yields approach, insights for corporate sustainability disclosure. we…explicitly ask the question which types Apart from suggesting the need for corporations of means are important for the fostering and to conduct regular well-designed job satisfaction
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surveys, it suggests that dealing only with hygiene (Piketty 2014).276 The implications for corporate factors—such as adequate wage levels, occupational sustainability measurement and disclosure are health and safety (OHS), job security, non-abusive several. First, corporations need to disclose supervision, etc.—is only part of the equation. where they stand in terms of (i) pay differentials, Other conditions—“motivators”—play a key role by accurately calculating and presenting in a in generating positive long-term impacts on transparent manner pay ratios between CEOs worker satisfaction. These include, for example, or senior management and workers;277 (ii) trends opportunities for personal and professional associated with the ratio of profits to wages; and advancement, recognizing and rewarding people’s (iii) trends associated with labour productivity contributions and allocating responsibility. and real wages. Second, both Piketty and Stiglitz While both sets of factors need to be addressed place great store in “workplace democracy” as one simultaneously, it can be argued that the types of pathway towards greater equality. This reinforces issues emphasized in conventional disclosure and the imperative of data and disclosure related to reporting, such as compliance with minimum freedom of association, collective bargaining and wage legislation and OHS may have a limited other means of effective participation in both bearing on job satisfaction. decision making and profit distribution.
As Saner et al. (2018) reveal, this approach is Stiglitz (2012, 2016, 2018) also calls attention to also useful for comparing the performance of the perverse effects of the concentration of capital, enterprises associated with different enterprise market power, financialization and uncompetitive models. The researchers compare a digital platform practices associated with monopolistic advantage, cooperative (Loconomics) and a digital platform as well as the mechanisms by which corporate capitalist enterprise (TaskRabbit). Focusing on interests rig the political system and the policy variables that include the ownership structure, regime in their favour. While such analysis points the pattern of distribution of profits and benefits, to the key role of active citizenship, fiscal policy participatory versus hierarchical or top down and regulatory change, it also has implications decision making and the quality of interpersonal for corporate responsibility, not least in terms of relations among employees and stakeholders, facilitating the market power of workers through they suggest that “the democratic practices of the collective bargaining, responsible lobbying and platform cooperative model in engaging workers political campaign contributions, declaring and through its joint ownership model, inclusive managing conflicts of interest associated with decision-making process, fair distribution of gains, revolving doors and fiscal responsibility. and strong interpersonal relationships allow it to satisfy workers’ needs better than the platform “Redistributive economics” also has implications capitalist model” (Saner et al. 2018:17). for correcting the skewed spatial distribution of income and profits. This manifests itself in various 276 Whereas ratios of CEO Strands of heterodox economics which emphasize ways, including “urban bias”, profit repatriation to “typical” worker pay of 20 or 30 to 1 were the issue of (re)distribution highlight the crucial and tax havens, i.e. when financial resources are common in the United role that inequality plays in unsustainable siphoned out of rural areas or local production States in the 1960s and 1970s, today they development. Thomas Piketty and Joseph sites to cities, from host to home countries, or to are in excess of 300 Stiglitz, for example, identify worrying trends sites conducive to tax avoidance, respectively. to 1. And whereas CEO pay increased by involving the acceleration of inequalities in 71 percent between income and wealth within society in general Political philosophy and political sociology, 2009 and 2017, that and corporations in particular, as well as in the associated, for example, with the work of Jürgen of workers increased by 2 percent (EPI functional distribution of income, i.e. the ratio Habermas and Ulrich Beck, provide pointers 2018). of profits to wages. Significant gains in worker related to the need to transform power relations 277 Oxfam (2016) productivity in recent decades are no longer within corporations and global value chains. notes that of the 10 largest agro-food passed on to workers through increases in real For Habermas “communicative reason” is key corporations, only one, wages (Stiglitz 2012). Rapidly escalating returns to both power and emancipation: “all political Nestlé, publishes data to CEOs or “supermanagers” account for much power derives from the communicative power on the ratio of CEO to median workers’ pay. of the growing gap in incomes and wealth of citizens” (1996:170). For Beck (2005), new
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forms of direct participation in decision making, As Bebbington and Unerman observe when as well as the structuring of a regulatory system analysing conceptual frameworks conducive to beyond the national level, are key for addressing SDG-related accounting studies: “What [several]... contemporary global problems. have in common is that they consider systems dynamics and the nesting of impacts across spatial But when considering political philosophy and and temporal scales and seek to explain how its relevance for identifying key performance change happens on multi-scales” (2018). issues for corporate sustainability disclosure and blind spots, it is also useful to go back to classical Policies and practices related to CR tend to work political philosophy, not least the Marxist notion very much within the rules of the game, not of “capital”. This reminds us that the profit-making questioning structural dimensions of capitalism, process inevitably generates environmental, that is, the broader institutions within which social, democratic and competitive contradictions corporations are embedded. due to the nature of accumulation, concentration and domination that are part of the DNA of the The concept of path dependence associated with capitalist enterprise (Harvey 2014). Corporate institutional economics suggests that historically sustainability assessment has focused primarily ingrained structural and cultural elements that act on the extent to which “multi-capital” impacts as powerful headwinds against progressive change associated with contradictions or externalities are need to be a key focus of attention. Similarly, being reduced. Far less attention has been focused management theory supporting corporate on issues and indicators associated with the responsibility and sustainability need to recognize concentration of capital and so-called “corporate more explicitly the tensions and trade-offs between hierarchy”. ESG policy and performance on the one hand, and corporate commercial strategy, on the other While corporations increasingly engage in hand. Corporate policy that aims to marry ESG stakeholder dialogue, and while some disclosure principles with product development and core guidelines, such as GRI, are calling on companies business strategy may ignore the contradictory to consult with a range of stakeholders to effects of conventional structural conditions, for determine key contextual and materiality issues, example, trade-related externalities, ownership various “political” questions governing this models, labour market flexibilization, trends process need to be addressed. Who gets to sit at associated with the concentration of capital and the table? How much weight does their voice and monopoly, and the way conventional consumerist opinion carry? Are they simply consulted or can consumption patterns structure production and they contest and negotiate? Do they actually have investment. decision-making power? Relevant corporate sustainability issues that stem Institutional economics, à la Elinor Ostrom and from this analysis include such aspects as: multiple systems dynamics à la Jay Forrester (2009) and impacts on people and the planet associated with Donella Meadows (1998) likewise offer helpful activities along the global value chain; stakeholder insights. Concepts such as polycentricity and engagement and partnerships with multiple nested institutions point to the importance of actors; the scale and nature of linkages with interacting institutions operating at multiple organizations associated with financial circuits scales, and of interorganizational relations. and the sustainability performance of financial These can play a key role in patterns of resource service sector organizations; and policy coherence 278 The analysis management, regulation and cooperation that in terms of company ESG objectives being aligned associated with systems dynamics work well. Concepts such as feedback loops, with both a company’s commercial policy and formed the basis of complexity, unintended consequences and tipping with national and international development the inquiry called for 278 by the Club of Rome points reveal not only the limits to growth goals. which culminated in (Meadows et al. 1972) but also the limits of the the landmark report, The Limits to Growth, linear thinking that often underpins corporate Two key areas of institutional conditionality published in 1972 sustainability disclosure and reporting. associated with polycentricity and nesting relate (Meadows et al. 1972).
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to public policy and the broader rules of the game foster discrimination in pay and promotion and related to the functioning of capitalism. With abusive practices in the workplace. Demands and regard to public policy, a key indicator of corporate time use associated with care, in turn, reinforce sustainability relates to corporate advocacy and women’s subordination in the workplace, as lobbying. To what extent are corporations shifting evidenced in their positioning in lower paid, from regressive to progressive lobbying? While the lower quality jobs and underrepresentation in former facilitates such aspects as deregulation or management positions. In the contemporary the externalization of social and environmental neoliberal context, the role of the state in relation costs, the latter aims to counter such aspects. to care has often declined, market provision of care Indeed, the GlobeScan-SustainAbility (2018) services has increased, and women’s engagement survey of experts finds that “advocacy” is perceived in paid labour has increased (Razavi 2007). This to be the weakest aspect of corporate sustainability trilogy of conditions suggests that corporations strategy.279 must assume greater responsibilities in this area either through policies that directly support the Strands of economic history and economic capacity of employees to provide care or more anthropology also highlight the role of institutions. indirectly, for example, via forms of corporate For Karl Polanyi, institutions associated with political influence that promote progressive social redistribution, reciprocity, regulation, collective policy, including public policies that facilitate ownership and collective action played a key caregiving. role in shaping “market society”, re-embedding the economy and enhancing social protection.280 From the perspective of corporate sustainability Such institutions are essential to deal with crisis disclosure, this analysis points to the need to pay tendencies inherent in contexts of deregulating far more attention to care as an impediment to markets, as well as ongoing commodification, decent work and gender equality, and to indicators when people’s needs and public goods are that capture the structural conditions that converted into “fictitious commodities” that underpin women’s disadvantage in the workplace are produced and exchanged on the market and career structures, notably segmented labour (Polanyi 1944). This perspective suggests that roles, the underrepresentation of women in corporate sustainability disclosure needs to focus management and promotion, and the gender on issue areas associated with deregulation, for pay gap. It also points to the limits of focusing example, outsourcing and financialization; the on such indicators as compliance with minimum deterioration of labour rights such as collective wage regulations or meeting basic conditions bargaining; alternative enterprise ownership and associated with occupational health and safety. legal structures associated, for example, with social While meeting a “minimum threshold”282— and solidarity economy; and issues of corporate whether set by public or corporate policy—is, of taxation and corporate political influence that course, important from the perspective of poverty impact public policy and state capacity. reduction, it may do little from the perspective 279 Of the five predefined leadership attributes of equality (Phillips 2002). Equality demands that were assessed, Feminist theory has played a key role in not only social protection but also emancipation corporations were found to be strongest addressing blind spots within both academic (Fraser 2012). This type of analysis points to the on “Plan” and weakest analysis and policy making related to gender need for corporate sustainability disclosure to on “Advocacy” (GlobeScan and Sus inequality. Feminist economics and feminist also focus on women’s collective action through tainability 2018:27). philosophy not only highlight the role of women collective bargaining and other mechanisms as a 280 For a succinct review in social reproduction and unpaid care work, but means to both women’s economic and political of the influence and also how this role is a key enabling condition for empowerment. relevance of Polanyi’s work see Mendell et the market economy and underpins women’s al. 2019. subordination.281 Furthermore, it is a role that 281 See, for example, determines significantly whether women’s Fraser 2012, Molyneux economic (and other) rights can be substantiated and Razavi 2002 and UNRISD 2005. (Nussbaum 2002, Phillips 2002). Cultural traits 282 Nussbaum 2006. and power relations associated with patriarchy
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Annex 7: World Federation of Exchanges (WFE) ESG Metrics and Indicators
ID Category Metric Calculation E1.1) Total amount, in CO2 equivalents, for Scope 1 (if applicable) E1 Environmental GHG Emissions E1.2) Total amount, in CO2 equivalents, for Scope 2 (if applicable) E1.3) Total amount, in CO2 equivalents, for Scope 3 (if applicable) E2.1) Total GHG emissions per output scaling factor E2 Environmental Emissions Intensity E2.2) Total non-GHG emissions per output scaling factor E3.1) Total amount of energy directly consumed E3 Environmental Energy Usage E3.2) Total amount of energy indirectly consumed E4 Environmental Energy Intensity Total direct energy usage per output scaling factor E5 Environmental Energy Mix Percentage: Energy usage by generation type E6.1) Total amount of water consumed E6 Environmental Water Usage E6.2) Total amount of water reclaimed E7.1) Does your company follow a formal Environmental Policy? Yes, No Environmental E7 Environmental E7.2) Does your company follow specific waste, water, energy, and/or recycling polices? Yes/No Operations E7.3) Does your company use a recognized energy management system? Yes/No E8 Environmental Environmental Oversight Does your Board/Management Team oversee and/or manage climate-related risks? Yes/No E9 Environmental Environmental Oversight Does your Board/Management Team oversee and/or manage other sustainability issues? Yes/No
E10 Environmental Climate Risk Mitigation Total amount invested, annually, in climate-related infrastructure, resilience, and product development?
S1.1) Ratio: CEO total compensation to median FTE total compensation S1 Social CEO Pay Ratio S1.2) Does your company report this metric in regulatory filings? Yes/No S2 Social Gender Pay Ratio Ratio: Median male compensation to median female compensation S3.1ibid) Percentage: Year-over-year change for full-time employees S3 Social Employee Turnover S3.2) Percentage: Year-over-year change for part-time employees S3.3) Percentage: Year-over-year change for contractors and/or consultants S4.1) Percentage: Total enterprise headcount held by men and women S4 Social Gender Diversity S4.2) Percentage: Entry- and mid-level positions held by men and women S4.3) Percentage: Senior- and executive-level positions held by men and women S5.1) Percentage: Total enterprise headcount held by part-time employees S5 Social Temporary Worker Ratio S5.2) Percentage: Total enterprise headcount held by contractors and/or consultants S6 Social Non-Discrimination Does your company follow a sexual harassment and/or non-discrimination policy? Yes/No S7 Social Injury Rate Percentage: Frequency of injury events relative to total workforce time S8 Social Global Health & Safety Does your company follow an occupational health and/or global health & safety policy? Yes/No S9.1) Does your company follow a child and/or forced labor policy? Yes/No S9 Social Child & Forced Labor S9.2) If yes, does your child and/or forced labor policy also cover suppliers and vendors? Yes/No S10.1) Does your company follow a human rights policy? Yes/No S10 Social Human Rights S10.2) If yes, does your human rights policy also cover suppliers and vendors? Yes/No G1.1) Percentage: Total board seats occupied by men and women G1 Governance Board Diversity G1.2) Percentage: Committee chairs occupied by men and women G2.1) Does company prohibit CEO from serving as board chair? Yes/No G2 Governance Board Independence G2.2) Percentage: Total board seats occupied by independents G3 Governance Incentivized Pay Are executives formally incentivized to perform on sustainability? Yes/No G4 Governance Collective Bargaining Percentage: Total enterprise headcount covered by collective bargaining agreement(s) G5.1) Are your vendors or suppliers required to follow a Code of Conduct? Yes/ No G5 Governance Supplier Code of Conduct G5.2) If yes, what percentage of your suppliers have formally certified their compliance with the code? G6.1) Does your company follow an Ethics and/or Anti-Corruption policy? Yes/No G6 Governance Ethics & Anti-Corruption G6.2) If yes, what percentage of your workforce has formally certified its compliance with the policy? G7.1) Does your company follow a Data Privacy policy? Yes/No G7 Governance Data Privacy G7.2) Has your company taken steps to comply with GDPR rules? Yes/No G8.1) Does your company publish a sustainability report? Yes/No G8 Governance Sustainability Reporting G8.2) Is sustainability data included in your regulatory filings? Yes/No G9.1) Does your company provide sustainability data to sustainability reporting frameworks? Yes/No G9 Governance Disclosure Practices G9.2) Does your company focus on specific UN Sustainable Development Goals (SDGs)? Yes/No G9.3) Does your company set targets and report progress on the UN SDGs? Yes/No G10 Governance External Assurance Are your sustainability disclosures assured or validated by a third party? Yes/No
Source: Table excerpted from WFE ESG Guidance and Metrics, Revised June 2018. Reproduced with permission. Full version at https://www.world-exchanges.org/news/articles/world-federation-exchanges-publishes-revised-esg-guidance-metrics.
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Annex 8: Relevant Standards Adopted by Selected Standard-Setting Organizations: World Federation of Exchanges (WFE), Impact Reporting and Investment Standards (IRIS), Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB)
This annex provides information on indicators adopted by four standard-setting entities that relate to the issue areas addressed in Part 2 of the report: intra-firm income inequality as measured by the CEO-employee pay ratio; the living wage; gender equality; corporate taxation; labour rights; and corporate political influence.
Table A1. CEO-employee pay ratio-related indicators
World Federation IRIS 5.0 Metrics GRI Standards of Exchanges (WFE) SASB Disclosure Topics* (updated may 2019) Disclosures Recommendations 2018
CEO Pay Ratio metric Wage Equity (OI1582) See GRI Standard 102: Employee incentives ID SI, Social category - Ratio of the wages paid General Disclosures 2016 and risk taking S1.1) Ratio: CEO total during the reporting The percentage of total compensation to median period to the highest Disclosure 102- compensation that is FTE total compensation. compensated full-time 38 – Annual total variable for executives employee (inclusive compensation ratio and all others. Use total compensation, of bonus, excluding Ratio of the annual total including all bonus and benefits), compared to compensation for the The percentage of incentives. the lowest paid full-time organization’s highest- variable compensation employee. paid individual in each that is equity for S1.2) Does your company country of significant executives and all others. report this metric in operations to the regulatory filings? Yes/No median annual total The percentage of For e.g. Dodd-Frank compensation for all employee compensation, regulations (US). employees (excluding the which includes ex- highest-paid individual) in post adjustments for the same country. executives and all others.
Disclosure 102-39 – Percentage increase in annual total compensation ratio Ratio of the percentage increase in annual total compensation for the organization’s highest- paid individual in each country of significant operations to the median percentage increase in annual total compensation for all employees (excluding the highest-paid individual) in the same country.
*According to SASB, “Disclosure topics indicate the ESG issues that are likely financially material to companies within [77] industries. Disclosure topics need to be of interest to investors, relevant across an industry and actionable by companies. Accounting metrics are quantitative and qualitative metrics that are a useful way to measure the issues highlighted by the disclosure topics in a way that is neutral and comparable. Accounting metrics address sustainability impacts, as well as opportunities for innovation. Activity metrics are metrics that help to provide more clarity into the size of the operation/ business and provide a normalization factor of the accounting metrics…There is not a core set of SASB metrics/indicators across industry standards…While metrics for the same or similar disclosure topics across industries may be the same, they also may not. It depends on issues that were deemed material after over 6 years of research with significant market input and how to best measure those topics within any given industry” (Personal communication with Devon Bonney, SASB, 3 December 2019).
192 CORPORATE SUSTAINABILITY ACCOUNTING: WHAT CAN AND SHOULD CORPORATIONS BE DOING?
Table A2. Living wage-related indicators
World Federation GRI Standards of Exchanges (WFE) IRIS 5.0 Metrics SASB Disclosure Topics* Disclosures Recommendations 2018
No metric Fair Compensation Policy See GRI 202: Market Industry specific example: Indicates whether the organization has a Presence Restaurants: Reference written policy to compensate employees to growing calls for living fairly and equitably and a system to Disclosure 202-1 Ratios wage in the restaurant monitor compliance with this policy. of standard entry industry but no specific level wage by gender metric except the Wage Premium (OI9767) compared to local following: Ratio that compares the additional minimum wage average wage paid to employees of the a. When a significant Fair labor practices organization, to the average wage paid for proportion of employees Restaurant example: a similar job in a similar industry/category are compensated based Voluntary and involuntary in the local market, at the end of the on wages subject to employee turnover rate reporting period. minimum wage rules, for restaurant employees. report the relevant ratio Employees minimum wage* (OI5858) of the entry level wage The average hourly wage Number of full-time, part-time, and by gender at significant for restaurant employees, temporary employees of the organization locations of operation to by region, and percentage that are earning the local minimum wage the minimum wage. of employees earning as of the end of the reporting period. minimum wage. b. When a significant Minimum wage multiple (OI6176) proportion of other The amount of legal Ratio of the average wage of non-salaried workers (excluding and regulatory fines and permanent (full-time and part-time) employees) performing settlements associated employees of the organization during the organization’s with labor law violations. the reporting period, compared to the activities are local minimum wage as of the end of the compensated based The amount of tax reporting period. on wages subject to credit received for hiring minimum wage rules, through enterprise zone *Minimum Wage definition describe the actions programs. The lowest wage permitted by law or by a taken to determine special agreement (such as with a labor whether these workers union). Note that a minimum wage differs are paid above the from a living wage, which also takes into minimum wage. account external factors such as the local cost of living and number of dependents. c. Whether a local minimum wage is absent Since the minimum wage varies according or variable at significant to geography, IRIS does not define a locations of operation, by minimum wage. Organizations can refer gender. In circumstances to the following resources for further in which different guidance on defining their local minimum minimums can be used wage: as a reference, report which minimum wage is - WageIndicator.org: The Wage Indicator being used. website aims to provide real, strong wage data for operations in all countries. d. The definition used for Its nation-based web pages function as “significant locations of online, up-to-date labor market libraries. operation”. - Fair Wage Guide: The Fair Wage Guide provides access to wage and pricing information for various countries. It helps users calculate local wages and compare them to local and international standards.
Note that organizations can cite other sources that provide more accurate information based on more immediately local circumstances and laws. Organizations should specify the industry/ city/country for which they are citing the minimum wage and should reference the source of the minimum local wage they use. Organizations should footnote details used in the calculation process.
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Table A3. Gender equality-related indicators
World Federation of Exchanges (WFE) IRIS 5.0 Metrics GRI Standards Disclosures SASB Disclosure Topics* Recommendations 2018
Gender Diversity Anti-Discrimination Policy (O19331) See GRI 102: General Workforce diversity Metric ID S4, Social Indicates whether the organization has Disclosures 2016 and inclusion category specific, written anti-discrimination The percentage of policy in place for its employees and a Disclosure 102-8 gender and racial/ethnic ID S4.1 Percentage: Total system to monitor compliance of this – Info on employees group representation enterprise headcount held policy. Organizations should footnote and other workers for executives, for by men and women details about the policy, including the a. Total number of employees professionals, and for all ID S4.2 Percentage: Entry- types of discrimination protected against by employment contract others. and mid-level positions and the systems in place for ensuring (permanent and temporary), held by men and women compliance. Anti-discrimination policies, by gender. The percentage of gender ID S4.3 Percentage: oftentimes called non-discrimination or and racial/ethnic group Senior- and executive- equal employment opportunity policies, c. Total number of employees representation among level positions held by create codes to prohibit or penalize by employment type (full-time management and all men and women. discrimination on the basis of age, and part-time), by gender. other employees. color, disability, gender expression, Board Diversity gender identity, HIV status, marital d. Whether a significant The amount of legal Metric ID G2, Governance status, national, social & ethnic origin, portion of the organization’s and regulatory fines and category participation in collective bargaining activities are performed settlements associated agreements, political opinion, race, by workers who are not with employment ID G1.1 Percentage: Total religion, or sexual orientation. employees. If applicable, a discrimination. board seats occupied by description of the nature men and women; G1.2 Permanent Employees: Female and scale of work performed Employee recruitment, Percentage: Committee (OI2444) Number of females employed by workers who are not inclusion, and chairs occupied by men by the organization as of the end of employees. performance and women the reporting period. This is the sum of Percentage of employee all paid full-time and part-time female See GRI 405: Diversity and engagement. Gender Pay Ratio employees. Equal Opportunity standard Metric ID S2, Social The voluntary and category Full-time Employees: Female (OI6213) 405-1 Diversity of involuntary employee Number of paid full-time female governance bodies turnover rate. Ratio: Median male employees at the organization as of the and employees compensation to median end of the reporting period. a. Percentage of individuals The percentage of female compensation. within the organization’s gender and racial/ethnic Guidance: Reported Part-time Employees: Female (OI8838) governance bodies in each group representation for FTEs only. Use Number of paid female part-time of the following diversity for executives, technical total compensation, employees at the organization as of the categories: i. Gender; ii. staff, and all others. including all bonuses and end of the reporting period. Age group: under 30 years incentives. old, 30-50 years old, over Board of Directors: Female (OI8118) 50 years old; iii. Other Non-Discrimination Number of female members of the indicators of diversity where Metric ID S6, Social organization›s board of directors or relevant (such as minority or category other governing body as of the end of vulnerable groups) the reporting period. Does your company follow b. Percentage of employees a sexual harassment and/ Gender Wage Equity per employee category in or non-discrimination Ratio of the average wage paid each of the following diversity policy? Yes/No during the reporting period to female categories: i. Gender; ii. employees of the organization for a Age group: under 30 years specified position, compared to the old, 30-50 years old, over average wage paid to male employees of 50 years old; iii. Other the organization for the same position. indicators of diversity where While this metric helps organizations relevant (such as minority or begin to understand gender wage equity vulnerable groups). in their operations, organizations are cautioned that other factors may affect the data collected. For example, the average wages reported for this metric may only be meaningful if there are multiple individuals of both genders in a similar position within the organization. Additionally, factors such as employee education, experience, tenure at the organization, and others may also influence wage disparities.
194 CORPORATE SUSTAINABILITY ACCOUNTING: WHAT CAN AND SHOULD CORPORATIONS BE DOING?
Table A3. Gender equality-related indicators (Continued)
World Federation of Exchanges (WFE) IRIS 5.0 Metrics GRI Standards Disclosures SASB Disclosure Topics* Recommendations 2018
Gender Ratio of Promotions (PI9467) Disclosure 405-2 Ratio of the basic Ratio of the number of the organization›s salary and remuneration of women female employees promoted during the to men reporting period compared to the number a. Ratio of the basic salary and of other employees promoted. (New metric remuneration of women to men April 2019) for each employee category, by significant locations of operation. Employees Promoted: Female (OI8646) b. The definition used for “significant Number of employees who are female and locations of operation”. who were promoted within the organization during the reporting period. See GRI 401: Employment 2016 standard Permanent Employee Wages: Female (OI4559) Disclosure 401-1 New employee Value of wages (including bonuses, hires and employee turnover excluding benefits) paid to all female a. Total number and rate of new full-time and part-time employees of the employee hires during the reporting organization during the reporting period. period, by age group, gender and region; b. Total number and rate Full-time Wages: Female (OI8941) of employee turnover during the Value of wages (including bonuses, reporting period, by age group, excluding benefits) paid to all female full- gender and region. time employees of the organization during the reporting period. Disclosure 401.2 Benefits provided to full-time employees that are not Part-time Wages: Female (OI8725) provided to temporary or part-time Value of wages (including bonuses, employees excluding benefits) paid to all female part- a. Benefits which are standard time employees of the organization during for full-time employees of the the reporting period. organization but are not provided to temporary or part-time employees, Full-time Wages: Female by significant locations of operation. Management (OI5247) These include, as a minimum: life Value of wages (including bonuses, ex insurance, health care, disability cluding benefits) paid to all full-time female and invalidity coverage, parental management employees (managers) of the leave, retirement provision, stock organization during the reporting period. ownership, others. b. The definition used for “significant Percent Female Ownership (OI2840) locations of operation”. Reporters Percentage of the organization that to exclude in-kind benefits such as is female-owned, as of the end of the sports or child day care facilities, reporting period. free meals during working time and similar general employee welfare Supplier Individuals: Female (PI1728) programs. Number of female individuals who sold goods or services to the organization Disclosure 401-3 Parental leave during the reporting period. a. Total number of employees that were entitled to parental Full-time Employees: Female leave, by gender. b. Total number Managers (OI1571) of employees that took parental Number of paid full-time female manage leave, by gender. c. Total number of ment employees (managers) at the organ employees that returned to work in ization as of the end of the reporting period. the reporting period after parental leave ended, by gender. d. Total Distributor Individuals: Female (PI6659) number of employees that returned Number of female individuals who served as to work after parental leave ended distributors of the organization›s products/ that were still employed 12 months services during the reporting period. after their return to work, by gender. e. Return to work and retention rates Payments to Supplier Individuals: of employees that took parental Female (PI2302) leave, by gender. Value of payments made by the organization to female individuals who sold goods or services to the organization during the reporting period.
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Table A4. Corporate taxation-related indicators
World Federation of Exchanges (WFE) GRI Standards SASB Disclosure IRIS 5.0 Metrics Recommendations Disclosures Topics* 2018
Previous 2015 WFE Payments to GRI 207: Tax No metric Recommendations Government (FP5261) 2019 Standard featured a Tax Value of all transfers to approved by Global Transparency metric. the government made Sustainability by the organization Standards Board 24 2018 Revised metrics during the reporting September 2019. have dropped metric period commenting: “Virtually Features 4 indicators unreported, so: Reporting format: 207-1: Approach to tax Eliminate”. Reporting Currency 207-2: Tax governance, (OD5990) control and risk The national currency management used to report currency 207-3: Stakeholder figures for this IRIS engagement and report. Indicate based management of on the International concerns related to tax Organization for 207-4: Country-by- Standardization (ISO) country reporting Currency List. Disclosure 201-1 Guidance: At a (formerly G4-EC1) minimum, this Direct Economic includes payments Value Generated to the government in and Distributed the form of corporate Requirements include, income or profit taxes. inter alia: Economic Additional forms of value distributed: transfer to be reported operating costs, as appropriate include: employee wages and (i) sales taxes, (ii) net benefits, payments VAT, (iii) royalties, (iv) to providers of dividends and related capital, payments to taxes, (v) management government by country, and/or concession and community fees, (vi) license fees, investments (vii) tax on payment of interest, and (viii) other Relevant guidance: material payments net of any direct subsidies Payments to received. (Metric government created in 2014.) An organization can Local Compliance calculate payments (OI9379) to governments as all Indicates whether of the organization’s the organization has taxes plus related been found to be out penalties paid at the of compliance with international, national, any local labor, tax, and local levels. or environmental Organization taxes regulations during the can include corporate, reporting period. income, and property.
Payments to government exclude deferred taxes, because they may not be paid.
If operating in more than one country, the organization can report taxes paid by country, including the definition of segmentation used.
196 CORPORATE SUSTAINABILITY ACCOUNTING: WHAT CAN AND SHOULD CORPORATIONS BE DOING?
Table A5. Labour rights-related indicators
World Federation of Exchanges (WFE) IRIS 5.0 Metrics GRI Standards Disclosures SASB Disclosure Topics* Recommendations 2018
Collective Bargaining Worker Freedom of See GRI 102 General Labor relations Metric ID G4, Association Policy (OI4364) Disclosures 2016 Airlines transportation example: Governance category Indicates whether the organi The percentage of active workforce zation has a written policy Disclosure 102-9 covered under collective-bargaining Percentage: Total to monitor, evaluate, and Supply Chain agreements, broken down by U.S. and enterprise headcount ensure its workers› freedom of Description of the foreign employees. covered by collective association. New metric since organization’s supply chain, bargaining agreement(s) 2016. including its main elements The number and duration of strikes as they are related to the and lockouts. Supplier Code Guidance - Freedom of organization’s activities, of Conduct Association is the allowance primary brands, products, Fair labor practices and workforce Metric ID G5, of workers to form and and services. (Sets overall health and safety Governance category join trade unions, worker context for understanding an Agricultural products example: The associations, and worker organization’s supply chain percentage of farms and facilities G5.1 Are your vendors councils or committees of their and includes location of certified for fair labor practices. or suppliers required own choosing. Examples of suppliers, labour intensity etc.) to follow a Code of relevant policies to footnote The total recordable injury rate, fatality Conduct? Yes/No may include: allowing workers Disclosure 102-41 Collective rate, and near-miss frequency rate for to participate in the setting Bargaining Agreements direct employees and seasonal and Cite public content, if or revision of workplace rules a. Percentage of total migrant employees. available. and standards, distributing employees covered by an employee handbook to all collective bargaining The description of efforts to assess, G5.2 If yes, what workers (written in their native agreements. monitor, and reduce exposure of direct, percentage of your language) that describes seasonal, and migrant employees to workplace has formally both legal requirements Disclosure 407-1 Operations pesticides. certified its compliance and the organization›s and suppliers in which with the policy? policies and procedures on the right to freedom of Airfreight and logistics example: The freedom of association, etc. association and collective percentage of drivers who are classified “Percentage” is defined Organizations can refer to the bargaining may be at risk as independent contractors. by total FTE headcount following source for further a. Operations and suppliers guidance: International Labor in which workers’ rights The amount of legal and regulatory Organization (http://www.ilo.org/ to exercise freedom of fines and settlements associated with global/standards/subjects-covered- association or collective labor law violations. by-international-labour-standards/ bargaining may be violated freedom-of-association/lang--en/ or at significant risk either in Food retailers and distributors index.htm). terms of: i. type of operation example: The average hourly wage (such as manufacturing plant) and percentage of in-store employees Anti-discrimination Policy and supplier; ii. Countries earning minimum wage. (OI9331) or geographic areas with Indicates whether the operations and suppliers The percentage of active workforce organization has specific, considered at risk covered under collective bargaining written anti-discrimination b. measures taken by the agreements. policy in place for its employees organization in the reporting and a system to monitor period intended to support The number and total duration of work compliance of this policy rights to exercise freedom stoppages. (including discrimination re of association and collective participation in collective bargaining The amount of legal and regulatory bargaining). fines and settlements associated Disclosure 402.1 Minimum with labor law violations and with Strikes and Lockouts notice periods regarding employment discrimination. Number of employees› operational changes strikes and lockouts at the a. minimum number of weeks’ Labor conditions in the supply chain organization during the notice typically provided The percentage of Tier 1 suppliers; and reporting period. to employees and their percentage of suppliers beyond Tier representatives prior to the 1 that have been audited to a labor Supplier Screening Policy implementation of significant code of conduct, and the percentage of (OI4739) operational changes that could those that were conducted by a third- Indicates whether the substantially affect them party auditor. organization has a written b. for organizations with policy of evaluating supplier collective bargaining The priority non-conformance rate and organizations based on their agreements, report whether associated corrective action rate for social and environmental the notice period and suppliers’ labor code of conduct audits. performance and a system to provisions for consultation and Discussions of greatest labor, monitor compliance with this negotiation are specified in environmental, health, and safety risks policy. collective agreements. in the supply chain.
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Table A6. Corporate political influence-related indicators
World Federation of Exchanges (WFE) SASB Disclosure IRIS 5.0 Metrics GRI Standards Disclosures Recommendations Topics* 2018
Ethics & Anti- Metrics specifically See GRI 102: General Disclosures 2016 Political spending Corruption referencing bribery and Coal Operations G6.1 Does your corruption among other Disclosure 102-13 Membership of associations example: The company follow an practices include: A list of the main memberships of industry or other associations, amount of Ethics and/or Anti- and national or international advocacy organizations. political campaign Corruption policy> Number of Legal and See GRI 415: Public Policy 2016 spending, lobbying Yes/No Regulatory Complaints expenditures, and (OI2165) received during Disclosure 415-1 Political contributions contributions to Cite public content, the last reporting period a. Total monetary value of financial and in-kind political tax-exempt groups, if available. contributions made directly and indirectly by the organization by including trade Value of Fines and country and recipient/beneficiary. associations. G6.2 If yes, what Settlements (OI7639) b. If applicable, how the monetary value of in-kind contributions percentage of your made during the last was estimated. The five largest workforce has reporting period When compiling the information specified in Disclosure 415-1, political, lobbying, formally certified its the reporting organization shall calculate financial political or tax-exempt group compliance with the Guidance for these metrics contributions in compliance with national accounting rules, expenditures. policy? states that: where these exist. Business ethics “Percentage” is A formal legal or regulatory Guidance Aerospace and defined by total FTE complaint includes Background - The purpose of this disclosure is to identify an Defense example: headcount. any complaint levied organization’s support for political causes. The amount of legal against the organization and regulatory fines by an individual, This disclosure can provide an indication of the extent to which and settlements other organization, or an organization’s political contributions are in line with its stated associated with government body due policies, goals, or other public positions. incidents of to the organization›s corruption, bribery, violations of rules of any Direct or indirect contributions to political causes can also and/or illicit government, regulatory present corruption risks because they can be used to exert international trade. organization, licensing undue influence on the political process. Many countries have agency, or professional legislation that limits the amount an organization can spend Revenue from association governing their on political parties and candidates for campaigning purposes. countries ranked in professional activities and If an organization channels contributions indirectly through the “E” or “F” Band any resulting externalities. intermediaries, such as lobbyists or organizations linked to of Transparency political causes, it can improperly circumvent such legislation. International’s Depending on the category Government Defense in which the organization Indirect political contributions Anti-Corruption operates, formal legal and Financial or in-kind support to political parties, their Index. regulatory complaints and representatives, or candidates for office made through an fines could be associated intermediary organization such as a lobbyist or charity, or Description of with (but not limited support given to an organization such as a think tank or trade processes to to) any of the following: association linked to or supporting political parties or causes manage business -Bribery or corruption, ethics risks including violations of Political contributions throughout the value the US Foreign Corrupt financial or in-kind support given directly or indirectly to political chain. Practices Act (FCPA) or UK parties, their elected representatives, or persons seeking Bribery Act -Data security political office breaches -Diversity and Note 1: Financial contributions can include donations, equal opportunity -Cartel loans, sponsorships, retainers, or the purchase of tickets for activities, price fixing, anti- fundraising events. trust activities -Consumer Note 2: In-kind contributions can include advertising, use of privacy -Environmental facilities, design and printing, donation of equipment, or the violations -Employee safety provision of board membership, employment or consultancy or workplace conditions work for elected politicians or candidates for office. -False, deceptive, or unfair advertising -False See GRI 205: Anti-corruption marketing claims -Federal pipeline and storage Disclosure 205-1 regulations -Financial Operations assessed for risks related to corruption reporting inaccuracies -Labor law violations -Land Disclosure 205-2 rights disputes -Libel or Communication and training about anti-corruption policies and slander -Money laundering procedures -Tax evasion Disclosure 205-3 Confirmed incidents of corruption and actions taken
Sources: World Federation of Exchanges Recommendations 2018 (v. 2) https://www.world-exchanges.org/our-work/articles/wfe-esg- revised-metrics-june-2018; IRIS 5.0 2019 Catalogue of Metrics, https://iris.thegiin.org/metrics/https://www.globalreporting.org/ SiteCollectionDocuments/2018/Mapping_WFE-ESG-Metrics_GRIStandards.PDF; GRI Standards 2018 downloadable at https:// 198 www.globalreporting.org/standards/gri-standards-download-center/; Sustainability Accounting Standards Board Disclosure (SASB), https://www.sasb.org/wp-content/uploads/2018/09/SASB_FieldGuide-web-080817.pdf. CORPORATE SUSTAINABILITY ACCOUNTING: WHAT CAN AND SHOULD CORPORATIONS BE DOING?
Annex 9: What Counts As Wages?
In relation to the issue of the living wage, methods used to calculate wages can vary significantly. The following guidance has been designed by the Global Living Wage Coalition.
DOs and DON’Ts: What to include in the wage analysis ❌ Do not include paid time off for ✔️Include 13-month and other cash holidays, annual leave, sick leave bonuses if they are guaranteed to all or maternity or paternity benefits. workers in the sample. They must These do not add to the disposable be prorated over a 12-month period income of workers. to be included in the monthly wage calculation. ❌ Do not count voluntary deductions, such as savings accounts, as part ✔ Only count allowances received of wage deductions. These are within one year; eventual payment considered as similar to disposable of pensions or provident funds income. should not be considered. ❌ If production bonuses are awarded ✔ Include only the remuneration, on an irregular basis, earned by only inclusive of in kind benefits, that is some workers, and require overtime received and used by the majority of hours to achieve, they should not be the representative sample, and thus, counted toward the living wage. most production workers in the organization. In kind benefits
✔ Review company list of cash As explained in the Anker Manual, in kind allowances and in kind benefits to benefits can often be an important part of ensure that they can be included remuneration received by workers: based on this requirement.
“In kind benefits reduce the cash wage that ✔ Include only the remuneration that is received on a regular basis. If it is workers require for living expenses. When an irregular or one-off payment, it workers receive essential goods and services such should not be included. as free meals, free housing, or free transport to work, their need for cash income to support a basic but decent living standard is reduced. This means that it is appropriate to take into ❌ Do not include bonuses earned consideration a fair and reasonable monetary in overtime hours or payment for value for in kind benefits when determining if an overtime work, as a living wage employer pays a living wage”. should be earning during regular work hours.
❌ Do not include management or supervisor wages in the analysis. Limit the sample to production Source: https://globallivingwage.org/wp-content/ workers. uploads/2018/05/Auditor-Guidance-Draft-Oct2016.pdf
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Annex 10: Companies with the Highest Rate of Female Representation at Board and Executive Levels*
Board level CYBG Retail & Specialized Banks United Kingdom 61% Kering Luxury Goods & Cosmetics France 60% Fortescue Metals Group Mining & Metals Australia 56% Macy’s Inc. Specialized Retail USA 50% Norsk Hydro Mining & Metals Norway 50% Rexel Specialized Retail France 50% Sa Sa International Holdings Specialized Retail China (Hong Kong) 50% Shutterfly Software & IT Services USA 50% Sparebank 1 SR Bank Retail & Specialized Banks Norway 50% TGS-Nopec Geophysical Oil Equipment & Services Norway 50% Unilever Food United Kingdom 50% Woolworths Supermarket Australia 50% Catholic Health Initiative Health Care Equip. & Services USA 50% L’Oreal Luxury Goods & Cosmetics France 46% Avon Products Inc Luxury Goods & Cosmetics USA 45% CGG Oil Equipment & Services France 45%
Executive level Nordstrom Specialized Retail USA 69% L’Oreal Luxury Goods & Cosmetics France 62% Sa Sa Int. Holdings Specialized Retail China (Hong Kong) 60% Imperial Holdings Specialized Retail South Africa 60% Empresa Nacional de Telecom. Telecommunications Chile 57% Wolters Kluwer CVA Publishing Netherlands 55% Lansforsakringar Bank Retail & Specialized Banks Sweden 50% Oesterreichische Kontrollbank Retail & Specialized Banks Austria 50% XL Axiata Telecommunications Indonesia 50% OP Financial Group Retail & Specialized Banks Finland 49% Northrop Grumman Aerospace USA 46% Alibaba Group Holding Specialized Retail China 45%
*Based on an assessment of more than 3,800 listed companies.
Source: https://30percentclub.org/assets/uploads/UK/Third_Party_Research/Gender-diversity-in-senior- corporate-managment.pdf
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Annex 11: Sustainability Accounting Terminology
Several recent cutting-edge innovations discussed in Chapter 3, as well as work conducted for the UNRISD SDPI project, have served to define more precisely and clarify the understanding and relevance of various terms used in the field of sustainability reporting. These include the following.
Sustainable development is defined as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (Brundtland Commission 1987). The concept conveys three key ideas that are relevant for organizations: • Development should not be defined narrowly in economic terms; at its core are objectives related to human well-being and planetary health. • This broader understanding implies that an organization should pursue an integrated approach that addresses simultaneously these different objectives. • An organization should be guided not only by short-term but also long-term goals aimed at ensuring the future health and longevity of the organization itself and the well-being of the resource base on which both current and future generations depend.
Sustainability reporting is the practice of publicly disclosing data related to an organization’s performance that impacts sustainable development. Data that matter relate not only to economic and financial dimensions but also environmental, social and governance (ESG) aspects. Sustainability reporting serves the dual purpose of minimizing risks and identifying opportunities both for the organization concerned and for its stakeholders. Large organizations often produce “Sustainability” or “Integrated” Reports, following standards and guidelines produced by standard-setting and ratings organizations.
Integrated reporting not only combines data related to both financial and non-financial aspects of performance but also understands the process of value preservation and creation in terms of the growth in the stocks and flows of different sets of vital assets or types of capital. These include financial, manufactured, human, social (including relationships), intellectual and natural capital. Value creation may also involve maintaining these assets at levels sufficient to ensure and sustain well-being. Integrated reporting aims to measure changes in these resources and also consider their interdependent nature.
Sustainability performance is a measure of the performance of an organization expressed in terms of what its impacts on vital capitals are relative to thresholds or “sustainability norms”. Such norms suggest a level at which an asset and its allocation can be considered sustainable, fair and conducive to the well-being of stakeholders. Gathering the necessary data and calculating how actual performance compares with sustainability norms is the task of sustainability accounting.
Stakeholders generally refers to those groups or individuals who can affect the ability of an organization to achieve its objectives, or who are affected by its activities (Freeman 1984). From the perspective of a company, a stakeholder is anyone to whom that company owes a duty or obligation to manage its impacts – both direct and indirect – on vital capitals in ways that can affect their well-being.
Impact valuation is a method used to quantify or calculate the value of the magnitude of an impact, whether positive or negative, on the stocks and flows of vital capitals. Impact valuation indicators are incrementalist in the sense that they are used to assess the size and marginal change, if any, from, say, one year to the next. Such changes are often expressed in terms of their relationships with other variables, as in the case of the measurement of resource intensity – for example, greenhouse gas emissions per unit of revenue or per unit of production.
Source: Baue 2020, McElroy 2019, UNRISD forthcoming.
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The United Nations Research Institute for Social Development (UNRISD) is an autonomous United Nations institute that undertakes interdisciplinary research and policy analysis on the social dimensions of contemporary development issues. Through our work, we aim to ensure that social equity, inclusion and justice are central to development thinking, policy and practice.
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Corporate Sustainability Accounting WHAT CAN AND SHOULD CORPORATIONS BE DOING?
Today’s global crises—financial, climate and health—as well as the Sustainable Development Goals have raised the bar in terms of expectations regarding corporate sustainability performance. They have also highlighted the need for sustainability policy and practices that address not only the symptoms of unsustainable development, but also the underlying causes associated with structural conditions that reproduce inequality, vulnerability and planetary degradation.
How, then, might corporate sustainability disclosure and reporting be repurposed to achieve these ends and, in so doing, measure and promote progress from the perspective of the transformational vision of the SDGs?
Part 1 of the report assesses the current state of play, tracking the impressive expansion and ratcheting up of sustainability indicators over three decades. But it also identifies ongoing major weaknesses: the failure of disclosure and reporting to conform to basic accounting principles, as well as the neglect of a number of issue areas and indicators that are absolutely key for assessing progress towards sustainable development.
Part 2 delves into the specifics of disclosure from the perspective of transformative change, focusing on five key performance issues—fair remuneration, gender equality, corporate taxation, labour rights, and corporate political influence—and unpacking the approaches, quantitative indicators and normative targets that need to be adopted if corporate sustainability performance and disclosure is to contribute in any meaningful way to a sustainable future.