As promised in the introductory blog on Markting, I’m giving some insights about how transparency is important for businesses and how to market how transparent you are about sustainability.
The motivations for businesses to incorporate sustainability in business are very different. For some businesses, sustainable practices play a fundamental role. Some companies react to negative events like oil spills and child labour practices, while others are forced to comply with rules and regulations, investor demands and customer demands. There is a need of transparency in environmental, social and corporate governance practices, known as ESG.
Regulators and transparency
The European Parliament adopted a Directive (in force by 2016) on the disclosure of non-financial information (EU Non- Financial Reporting Disclosure= NFRD) that large companies (listed, with 500 employees or more, for example banks and insurance companies) need to comply with. These companies need to disclose information annually about their environmental, social, bribery and anti-corruption matters. This includes the policies related to these matters, the results of the policies and the risks that are related. It is also important to know how the company manages these risks.
In the Netherlands, as of the report year 2017 the NFRD is adopted. The Dutch Ministry of Finance has adapted the NFRD to two laws which are “disclosure non-financial information” (“bekendmaking niet-financiële informatie”) and “disclosure diversity policy” (“bekendmaking diversiteitsbeleid”), found in book 2, article 391 section 5 of the Dutch Civil Code.
Investors and transparency
Socially Responsible Investing (SRI) is a term popping up when speaking about ESG and investment. It is also known as Value based, Social Investment of Ethical investment.
A real no-go is for example investing in alcohol, gambling, animal testing, tobacco and weapons. It is not done nowadays to invest in companies that sell or produce these substances. In the USA the MSCI KLD 400 Social Index is an example of a SRI-index. Companies as big as Microsoft, Procter & Gamble and Google are listed. A Dutch SRI-index is not known. Please tip us about one in your comments. Many Dutch banks have sustainable funds: ASN Duurzaam Aandelenfonds, ING Duurzaam Aandelen Fonds, RobecoSAM Sustainable Global Equity Fund en Triodos Sustainable Equity Fund.
Consumers and transparency
According to the Nielsen Global Sustainability Report, 66% of consumers questioned (33.000 from 60 countries of the world) are willing to pay more for products that kept the environment, packaging, biological certifications in mind when making their buying decisions. Nielsen says, I quote: “consumer brands that demonstrate commitment to Sustainability outperform those that don’t”.
Sales of consumer goods that are committed to sustainability grow steadily. Consumers want to be responsible world citizens and so they expect the same from the companies they buy from, or even invest in as consumers. Labels are checked, information is Googled on business practices and manufacturing practices. Any child labour involved?
In the Netherlands we see many brands drawing attention to fair practices (Tony Chocolonely) and there are certification scheme’s for for example chocolate and coffee (UTZ). The Fashion Revolution also makes an appeal to stop fast fashion practices by having the consumer ask their clothing brands about the way their clothes were made. There are even ways for consumers to assess whether the bank or insurance company is sustainable or not.
We can conclude that the sustainable practices of companies are watched closely, so there is a need for consistent and comparable measures. There are many ways of assessing ESG-criteria. Some of the major providers of sustainability reporting are the Global Reporting Initiative’s Sustainability Reporting Standards, the OECD Guidelines for Multinational Enterprises, the United Nations Global Compact’s Communication on Progress, and the ISO 26000 – International Standard for social responsibility.
Integrated Reporting is making it’s way more and more these coming years. Instead of making a special Sustainability report, research is done on how to integrate all information (financial and non-financial) into one report.
Being transparent by disclosing ESG information doesn’t mean a company is 100% sustainable. But regulators, investors and consumers are holding companies accountable for their ESG-related behaviour.
What can you do? Start making an inventory of what you already do, and report on it, using one of the many available reporting guidelines. We can help you discover your low hanging fruits and areas where you still need work to do.