What every manager should know about (4/5): Corruption and Bribery

Introduction

Now that large corporates have to adhere to EU regulation 2014/95/EU, managers should be more familiar with a number of non-financial topics. The EU regulation on the disclosure of non-financial information asks firms to provide information on environmental, social and employee matters, respect for human rights, anti-corruption and anti-bribery matters.

In this post, the spotlight will be on corruption and bribery. I will give you definitions of bribery and corruption, explain why businesses can benefit from fighting corruption and bribery, and will show you how to implement an anti-corruption policy.

Corruption and bribery, an attempt at a definition

Transparency International (TI) defines corruption as ‘the abuse of entrusted power for private gain’. In addition TI says: ‘It can be classified as grand, petty and political, depending on the amounts of money lost and the sector where it occurs.’ I use TI’s definition of corruption, and not the definition given by the EU in its regulation, because the EU regulation does not include a definition. Nor does the EU provide a definition of bribery. So, instead, to find a less concise definition than the one used by TI, I consulted the anti-corruption convention endorsed by the highest number of states, the United Nations Convention against Corruption (UNCAC). However, UNCAC also couldn’t agree on the right definition…

According to Leslie Holmes, the reason why defining corruption (and bribery) is so difficult is threefold. In Corruption, A Very Short Introduction, he writes that cultural reasons, jurisdictional reasons and scholarly reasons all contribute to definitional confusion.  To solve this – and to elaborate on the definition offered by TI – Holmes proposes a 5-step approach to identify corruption, which I will use in the remainder of this blog:

  • the action (or omission) must involve an individual (an official) or a group of officials occupying a position of entrusted power;
  • the official has a degree of authority in decision-making;
  • the official must commit the act (or omit to do what he should) at least partly because of personal interests or the interests of an organization to which he belongs, and these interests must ultimately run counter to those of the state and society;
  • the official acts in a clandestine manner, and is aware that his behavior is or might be considered illegal or illicit. If uncertain about the level of impropriety, the official opts not to check this because he wishes to maximize his own interests;
  • the action or omission must be perceived by a significant proportion of the population and/or the state as corrupt.

Corruption encompasses both economic improprieties, such as embezzlement and bribes, and social improprieties such as appointing family (nepotism) or friends (cronyism). (Please note that cultural norms might label the same activities as corruption in one culture, but not in another; this is the reason for including the last step — i.e. the action must be perceived as corruption — in the approach to identify corruption.)

The difference between corruption and bribery, thus, becomes clear: bribery is a form of corruption. The OECD further defines bribery by listing some instruments for bribes: gifts, hospitality and entertainment, customer travel, political contributions, charitable donations, sponsorships, facilitation payments, and solicitation and extortion.

Considering the possible elements of corruption above (i.e. bribery, embezzlement, nepotism and cronyism), bribery is arguably the salient form of corruption in the business world. This is perhaps the main reason why the terms ‘bribery’ and ‘corruption’ are almost used interchangeably in guidance documents targeted at the business world. The OECD Good Practice Guidance on Internal Controls, Ethics, and Compliance, for example, uses ‘ant-bribery’ exclusively. When the same OECD joins forces with the United Nations and the World Bank to draft the Anti-Corruption Ethics and Compliance Handbook for Business, however, the nomenclature is ‘anti-corruption’ instead of ‘anti-bribery’. This confusion of terms should not deter us, though. Bribery is a form of corruption. When a guideline calls for business to implement procedures to combat corruption, I think it’s a safe bet that they want you to implement procedures to combat bribery. In the remainder of this post, I will use the terms interchangeably.

Why should businesses care about corruption and bribery?

Your business should obviously comply with rules and regulation (such as EU regulation 2014/95/EU) on the disclosure of your policies and results in preventing corruption and bribery. There are a number of reasons why governments and international organization would push for such regulations (all that follows is, again, from Corruption, A Very Short Introduction):

  • Societal reasons. Corruption can lead to reduced aid. It can lead to increase inequality and a sense of ‘them and us’, or to reduced social capital and low levels of trust, and higher (organized) crime rates. A specific example where society pays the price for corruption relates to the construction industry where corrupt safety inspectors ignore malpractices in return for bribes, leading to unsafe buildings. (Also see my blog on human rights and the Rana plaza disaster.)
  • Environmental reasons. Corruption and bribery can be a problem in issuing permits for natural resource exploitation. One problem that you have surely heard about is illegal logging in countries like Brazil and Indonesia.
  • Security reasons. ‘For a state to exercise its defense, law enforcement, and welfare function properly it needs adequate funding; if corruption reduces government revenue, this has detrimental effects on the state’s overall capacity to protect its people. There is a strong correlation between weak states and high levels of corruption.
  • Economic reasons. Countries that score high on perceived corruption (see for example the corruption perception index 2016 from Transparency International) face lower levels of Foreign Direct investment, have lower tax revenues, and often face issues like ‘brain drain’.

In addition to the reasons that governments and international organization would offer to combat corruption and bribery, surely there is a conspicuous reason for business to do so as well: free competition. Businesses depend on free markets and free competition. Without it, your firm could lose out on business unfairly. It is one thing to lose business to a competitor where there is a level playing field; it’s an entirely different thing if you lose business to a competitor who engages in bribes to secure sales. The UK Secretary of State for Justice, in his foreword to the guidance for business to the UK Bribery Act (2010), says:

Addressing bribery is good for business because it creates the conditions for free markets to flourish.

A second reason why business should care is to maintain its reputation. The numerous corporate corruption cases which surfaced in the last years didn’t do much good. Holmes gives some examples:

The focus so far has been on the negative impact of corruption in the narrow sense (i.e. that involves state officials). But in the 21st century, the general public has become far more aware of the potentially devastating effects of corruption in its broad sense. As one Western corporation after another – Enron (USA), WorldCom (USA), Parmalat (Italy), Siemens (Germany), AWB (Australia), to name just a few – has been shown to have been engaging in misconduct, including bribery and kickbacks to secure overseas contracts, so the public’s trust in the corporate sector has plummeted.

The Economist, in a review on a new book about corruption, puts it like this:

Corruption is never far from the front page. In recent weeks, thousands of Romanians protested against plans to decriminalize low-level graft, and Rolls-Royce was hit with a [$835m] penalty for alleged bribery. Meanwhile, long-running corruption scandals continue to roil political and corporate leaders in Brazil and Malaysia. The growing attention has spurred governments to pledge action, as dozens did at a global anti-corruption summit in London last year.

Anti-corruption policies thus help companies (i) to defend free markets and (ii) build their reputations as trustworthy and reliable business partners. One way to do this is to explicitly report on bribery and corruption (just as the EU directive demands). Some see this as an extension of corporate governance reporting (see my blog on new governance) and propose to add it to other corporate governance disclosures. Holmes describes the evolution to a quadruple bottom lining as follows:

Since at least the early 1990s, more and more companies have been presenting their annual reports not merely in terms of financial performance – the traditional ‘bottom line’ – but also of their social and environmental achievements. (…) This triple bottom lining – also known as the 3Ps approach, namely ‘people, planet, and profit’- is usually presented as ‘sustainability reporting’. But in recent years, there has been a push to add a fourth bottom line, governance. This would include reporting on what a company has been doing to reduce bribery and corruption. It is argued by proponents of this ‘quadruple bottom lining’ that firms would benefit from reporting a fourth line, since it should enhance a company’s reputation.

To be able to report on your efforts to prevent bribery and corruption — as Holmes describes, and the EU regulation demands — you first have to implement the proper procedures within your firm. This is the subject of the next paragraph.

How to implement an anti-corruption policy

In implementing an anti-corruption policy, you could revert to one of the many guidance documents available. I already mentioned the UK Bribery Act Guidance and the OECD Guidelines. What follows is a (very) short overview of best practices from the Anti-Corruption Ethics and Compliance Handbook for Business drafted in a joint-effort by the OECD, the World Bank, and the UN Office on Drugs and Crime (UNODC). This is not so much a step-by-step guide on how to implement an anti-corruption policy, but an exhaustive list of things to keep in mind while drafting, implementing and following up on your policies and procedures to combat corruption.

  1. A risk assessment, addressing the individual circumstances of the corruption and bribery risks faced by your firm and its business partners, should be the basis for any anti-corruption program.
  2. Support and commitment from senior management for the prevention of corruption. Senior management’s involvement should be strong, explicit and visible.
  3. Develop an anti-corruption program. The program should at least include your firm’s anti-corruption efforts, including values, code of conduct, detailed policies and procedures, risk management, internal and external communication, training and guidance, internal controls, oversight, monitoring and assurance. The program should be applicable to all employees.
  4. Oversight of the anti-corruption program. Top management appoints a senior officer to oversee and co-ordinate the compliance program with adequate level of resources, authority, and independence. The senior officer in charge, reports periodically to top management.
  5. Clear, visible, and accessible policy prohibiting corruption. Here, you can think about preparing and disseminating an internal anti-corruption manual.
  6. Detailed policies for particular risk areas. Areas often mentioned are: gifts, hospitality and entertainment, customer travel, political contributions, charitable donations and sponsorships, and facilitation payments.
  7. Application of the anti-corruption program to business partners. Here, you should consider all business partners you may need to include in rolling out your compliance program, such as contractors, suppliers, agents, lobbyists, consultants, auditors, representatives and distributors.
  8. Internal controls and record keeping. This refers to proper financial accounting procedures and other checks and balances.
  9. Communication and training. Periodic communication and periodic documented training for all employees.
  10. Promoting and incentivizing ethics and compliance. The firm’s commitment to an anti-corruption program should be reflected in its human resource practices. It should be clear that compliance with the program is mandatory and that no employee will suffer demotion, penalty or other adverse consequences for sticking to the program, even if it may result in losing business.
  11. Detecting and reporting violations. The anti-corruption program should provide a safe space, and encourage employees and others to raise concerns and report suspicious circumstances.
  12. Addressing violations. Your firm should consider appropriate disciplinary procedures to address, among other things, violations of laws against corruption and bribery, and the company’s ethics and compliance program.
  13. Periodic reviews and evaluations of the anti-corruption program. Install periodic reviews to assess if improvements to your program are needed.

What’s next?

The ESG-topics covered in this series have some common aspects. First, they could all be seen as posing a risk to your company’s efforts for profitability (or even your license to operate). Second, it could be argued that they are not a core element of your firm’s mission but are ‘hygiene’ factors that do not immediately lead to higher profitability per se, but could hurt profitability if not properly managed. Third, external communication on these topics goes beyond communicating to such direct stakeholders as shareholders, customers and regulators. These three common aspects lead me to propose that ESG-topics should be viewed and managed as an integral topic from both an organizational structure as a business process point-of-view.

In my final post on the EU directive and related ESG-topics, I will, thus, revisit the advice given in previous blog posts, and try to synthesize these in a unifying approach towards managing ESG-topics relevant for your organization.

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What every manager should know about (3/5): New Governance

As your organization is getting ready for the implementation of EU guideline 2014/95/EU on the disclosure of non-financial information, I hand you a series of blog posts on non-financial topics that business managers might be less familiar with. My aim for this series of posts is twofold: First, to give you insight into concepts that are integral to non-financial frameworks on reporting, such as the Global Reporting Initiative (GRI) framework. Second, to show why and how you should integrate these specific non-financial disclosures into your overall business and risk management strategy.

The first blog in this series discussed climate change; the second post discussed human rights.

For the third installment in this series on non-financial information, I will focus on governance. Not the governance business managers might already be familiar with; but a new governance arising from a world where a diverse multitude of stakeholders influence the decision-making process within the firm.

I will discuss what new governance is, why new governance is a good way to manage your ESG-risks, and how you should go about implementing a way of working that takes into account new governance.

Corporate Governance

Governance is the process of governing. Governing, in turn, is defined by the Oxford English Dictionary as conducting (i.e. directing or managing) the policy and affairs of a state, organization, or people. Corporate governance, therefore, can be defined as managing the policies and affairs of a corporation.

Business managers will be familiar with corporate governance being described along the lines of the following (and many more) concepts: accountability procedures for board and management team; policies and accountability to shareholders and other stakeholders; transparency; ethical behavior; audit procedures. All these concepts and procedures of corporate governance have been well established: see for example the G20/OECD Principles of Corporate Governance. (Although I have to add that discussions on governance issues such as executive pay, and occurrences of accounting scandals will probably never end, as this article and this article (respectively) in The Economist show; I guess no amount of governance will ever change human nature…)

Since business managers (and their internal and external auditors) already have a very clear understanding of what corporate governance entails, it would not add anything to their knowledge by only restating the principles of corporate governance as defined by (e.g.) the OECD. Instead, I will focus on a broader definition of governance. As you will see, this broader definition will help you understand how governance is a more extensive issue than just corporate governance, and how it is linked to those other ESG-risks: environmental risk and social risk.

Beyond Corporate Governance: New Governance

Setting rules, regulations and policies to govern the organization internally is not sufficient to manage a business organization in the twenty-first century. A number of developments in the last decades have pushed governance from hierarchical structures (such as those followed by most corporates and all national governments) towards new forms of governance.

The first of these developments is the ‘explosion of advocacy groups during the last third of the twentieth century’ as Mark Bevir calls it in Governance, A very Short Introduction. Without a doubt, the increasing range and variety of stakeholders are getting an ever stronger say in policy development, whether it be government policy or corporate policy. A second development is that the rise of globalization has called for global governance to manage international flows of good, money and financial products or investment. Increasing globalization necessitates governance of non-economic issues such as security, food safety standards, climate change, and other issues affecting global commons that transcend national boundaries (e.g. clean air and water, protecting marine life).

The old form of hierarchical governance (via national or international institutions) is increasingly replaced by multi-stakeholder governance models. According to Bevir, the features that these new models have in common are:

  • they combine established administrative arrangements with features of markets and networks;
  • they are multi-jurisdictional and often transnational;
  • they involve an increasing range and plurality of stakeholders;
  • governing arrangements, different levels of governance, and multiple stakeholders are often linked together in networks.

Business firms should be aware of new governance because they increasingly run into non-economic issues that transcend national boundaries. In many cases, they will find that the issue at hand is governed by new governance, instead of by old-fashioned hierarchical governance (i.e. national rules and regulations).

Corporate Governance vs. New (or Network) Governance

Although governance in business organizations is already in place in the form of corporate hierarchical governance, business managers need to be aware of new governance in the form of network governance. There are roughly three types of governance according to Bevir:

Most of the typologies focus on three ideal types: hierarchy, market, and network. Each of the ideal types relies on a particular form of governance to coordinate actions. Hierarchies rely on authority and centralized control. Markets rely on process and dispersed competition. Networks rely on trust across webs of associations. (…) Box 1 provides an overview of the resulting types.

As for corporate governance, organizations are – by their very nature – steeped in hierarchical thinking. In addition, the market variety of governance should not hold too many secrets for business organizations either. Network governance, however, is a different matter. Because of developments described earlier – dramatic increase in advocacy groups, and increasing multi-stakeholder governance for transnational issues –, organizations are faced with mounting pressure to start using network governance as an additional governance model in organizational processes.

Implementing Network Governance

Implementation of network governance within a business organization – to manage issues that transcend the sole responsibility of the company – might feel unconventional for business managers for two reasons. First, companies are built on hierarchical foundations and compete in markets, but the principles of network governance – based on trust – will feel new and alien in a business environment. Second, corporate governance is still very much focused on shareholders (as opposed to stakeholders) as Bevir argues:

A key principle of corporate governance is thus the rights of shareholders. The main issue of corporate governance is how to ensure that the rights of the shareholders are properly safeguarded.

Network governance introduces the concept of interdependency between multiple stakeholders, which comes with a number of sets of conflicting modi operandi: trust vs. authority, interdependent vs. dependent, diplomacy vs. rules and commands, and reciprocity vs. subordination. (Again, see box 1.) It is, thus, not an exaggeration that the ways of network governance are a-typical for how most business managers are used to conduct their business.*

Taking into consideration that i) network governance is a-typical for any business organization, ii) the need for implementing network governance is increasing, and iii) not being able to handle new governance poses an (ESG-) risk in itself, I propose that organizations start implementing new governance on a case by case basis, in order for the organization to get used to the processes of network governance.

In my previous blog post in this series, I introduced an 8-step approach on how to implement a human rights policy in your organization. Here, I repeat that approach in a slightly different format to highlight the elements that I think will help you understand where network governance comes into play.

An approach to start working on an issue that needs involvement of many stakeholders should always start with a broader ESG-risk analysis to determine where your firm’s priorities should be. After that – and this is the first step of implementing network governance in your organization – engage stakeholders. Engage widely with stakeholders and formalize the dialogue. The engagement should lead to a decision on a compliance strategy: a code of conduct or certification scheme(s) that has the support of your stakeholders. (The next four steps in the 8-step approach are mainly geared towards supplier selection in such a way that you can deliver on your results, so I will not discuss these here.)

After you have results from your activities and operations, report and communicate your efforts and results according to your compliance strategy or integrate the results in your ESG-report. Reach out to all stakeholders involved and get their feedback. The last step is setting up a quarterly review board. Make sure it is composed of in-house and NGO experts, external academics, and local stakeholders such as unions and local communities.

In short, to put you on track for implementing network governance in your organization, you should: engage stakeholders, report to stakeholders and get their feedback, and finally discuss your results in a quarterly review board. Putting so much emphasize on stakeholder processes (and regular transparent public reporting) might feel unconventional in a business environment, but it is the only way to adapt the firm’s processes to face non-economic transnational issues.

As I already argued in my blog post The Business Case for Non-Financial Reporting, disclosing non-financial information can lead to insights on how to update your business strategy or improve stakeholder relations. In addition, by implementing the new governance model, your firm will report on ESG-topics in such a way that your stakeholders will endorse your efforts. Implementing network governance thus becomes a powerful mechanism to reduce your overall ESG-risk and manage your firm’s reputation.

(* On a more philosophical note: network governance might also feel a-typical or unconventional because of the reign of the two main theories in international relations. Realists seem to accept that international issues are power-issues not all too different from Thucydides’ history of the power struggle between ancient Athens and Sparta. (Reading the classics really never is a waste of time.) Liberals hope to solve international issues through international institutions and law. Network governance (in this case called global governance), in contrast, seeks a solution that is not found in realist or liberal views; it tries to solve international issues through informal norms and self-monitoring. This could also be called the multi-stakeholder view, I suppose. For a short introduction on these views, again refer to the excellent little book by Bevir on governance.)

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What every manager should know about (2/5): Human Rights

0-mazars-infographice-eiu-survey-march-2015_oe_full

As your organization is getting ready for the implementation of EU guideline 2014/95/EU on the disclosure of non-financial information, I hand you a series of blog posts on non-financial topics that business managers might be less familiar with. My aim for this series of posts is twofold. First, to give you insight into concepts that are integral to non-financial frameworks on reporting, such as the Global Reporting Initiative (GRI) framework. Second, to show why and how you should integrate these specific non-financial disclosures into your overall business and risk management strategy.

The first blog in this series discussed climate change. You can read it by following this link.

The second blog of the series will discuss the aspects of human rights you should be familiar with as a business manager. I will discuss what human rights are, what the key drivers for respecting human rights are and, finally, how you can build a supply chain that respects human rights.

Defining Human Rights

What should the relationship between business and human rights be? The United Nations (UN) defines the role of business as respecting human rights; as opposed to states, that must protect human rights. Paragraph 12 of the UN Guiding Principles on Business and Human Rights (UNGP) states:

The responsibility of business enterprises to respect human rights refers to internationally recognized human rights – understood, at a minimum, as those expressed in the International Bill of Human Rights and the principles concerning fundamental rights set out in the International Labour Organization’s Declaration on Fundamental Principles and Rights at Work.

Both the International Bill of Human Rights and the International Labour Organization (ILO) are part of the broader human rights movement that arguably started with the Enlightenment. In the table below, the Bill of Human Rights and the ILO are put into historical perspective. I highlight the texts which are referred to in this post (i.e. Bill of Human Rights, ILO, and UNGP) in blue:

table-complete

As we can see from this non-exhaustive timeline, human rights are ever evolving and expanding. In the words of Andrew Clapham in Human Rights: A very Short Introduction:

The human rights catalogue will continue to expand as new challenges emerge and new constituencies find it helpful to frame their claims as issues of human rights.

To list all articles in both frameworks (International Bill of Human Rights and in the ILO’s Declaration on Fundamental Principles and Rights at Work) will not be very helpful for managers to develop a first understanding of business and human rights.  Instead, I use clusters of human rights introduced by The Economist Intelligent Unit (EIU) in a report on the ‘challenges for business in respecting human rights’ (ranked in the order in which companies scored them as relevant to their activities):

clusters-of-rights

Not all rights are the same explains Clapham. We distinguish between:

  • Absolute rights: genocide, crimes against humanity, slavery, and torture are international crimes which are prohibited at all times.
  • Rights limited through legal restrictions designed to protect a defined legitimate objective: rights to liberty, fair trial, freedom of expression, belief, assembly, association, and property; any restriction on these rights has to be justified as proportionate to the aims pursued by the restrictions.
  • Rights that have built-in limitations: free speech and privacy.
  • Social, economic and cultural rights (sometimes called ‘aspirations’ instead of rights): food, education, health, housing and work.

Now that we have an understanding of the historical background of human rights, relevant clusters of human rights for business, and awareness that rights can have limits; we turn to the business drivers of respect human rights that go beyond mere compliance.

Drivers for Implementing Human Rights Policies

Besides compliance (a primary driver), there are a number of reasons why your company should have proper human rights policies in place. These include the protection of the company brand and reputation. Reputational risk is especially high if a firm has complicated supply chains. A 2015 article in the Journal of Business Ethics explains:

Social issues become relevant in supply chains because of the involvement of multiple suppliers who directly affect the reputation of the buying firm. Additionally, an enlightened stakeholder (both internal and external) holding the firm accountable for social issues in supply chains forces the firm to take responsible supply chain actions.

Two examples that are known throughout the business and human rights community are the Rana Plaza disaster and the Rohingya case in Thai fisheries.

In the Rana Plaza disaster in 2013, over a 1,000 garment workers died in the collapse of a factory building in Bangladesh. The EIU report rightfully links it to a failure of respecting human rights:

Spectacular failures of human rights protection still claim headlines. To cite just one of several recent examples, the tragic collapse of the Rana Plaza commercial building in April 2013 led to renewed questions about the quality of companies’ oversight of their suppliers’ human rights practices as well as the role of government in protecting such rights.

How events like these can hurt your companies’ reputation was shown by the bad news coverage Primark, a low cost British garment label, received when it was linked to the disaster (see for example the article Disaster at Rana Plaza in The Economist).

Another example that shocked the world in 2015, was the enslavement of Rohingya (an ethnic people from Myanmar) aboard Thai fishing boats. The Guardian reports:

Rohingya migrants trafficked through deadly jungle camps have been sold to Thai fishing vessels as slaves to produce seafood sold across the world, the Guardian has established.

The seafood was traced to individual leading supermarkets worldwide that had to take immediate action to manage their reputation.

External and internal stakeholder pressure is often mentioned as another driver to implement human rights policies. NGO’s, local communities, investors, and employees can all pressure the corporation into doing more on human rights topics. Risk management might be a fourth driver for implementing human rights policies and procedures. Risks to manage are, apart from the reputational risk already mentioned, risks that stem from disruptions in the supply chain because of issues with human rights (e.g. strikes, bad quality of products, or drops in productivity, etc.). A final driver, which is sometimes overlooked when it comes to human rights policies, is performance improvement. Workers that are well taken care of tend to perform better, which will, in turn, lead to higher output or higher quality of products in your supply chain.

With these five sets of drivers (i.e. compliance, protecting the company reputation, external and internal stakeholder pressure, risk management, and performance improvement) there is surely a business case for implementing human rights policies in your supply chain. We will now discuss how to do just that.

Implementing Human Rights Policy in Your Supply Chain

From all the ESG-topics that firms try to grasp, human rights might prove to be the most difficult one. The head of government relations at Anglo American, a mining corporation, says (in the EIU report):

the notion of human rights abuses is an alien and scary one among technical functions who are more used to ‘impacts’ and structured, technical processes to address them, as opposed to legal ones.

John Ruggie (who drafted the UN Guiding Principles), also in the EIU report, agrees:

It takes time. It takes training. Things have to be translated into operations-speak if they are going to be effectively internalised by people on the ground.

Concluding that implementing human rights policies is not easy, one of the key strategies in implementing those policies is to team-up: involve NGO’s and maybe academia and regulators. In the words of a study published in the Notre Dame Journal of Law, Ethics and Policy:

Human rights are ever evolving so there is a need for open dialogue with government, social groups, NGOs and other stakeholders.

Taking all this into considerations, I propose an eight step approach to implementing human rights policies in your supply chain. This approach borrows insights from the Canadian Network for Business Sustainability, William Bradford’s comprehensive article Beyond Good and Evil: The Commensurability Of Corporate Profits and Human Rights, and Yawar and Seuring’s literature review Management of Social Issues in Supply Chains.

Step 1: Analyze and prioritize. First, perform a risk analysis and determine where your priorities need to be. An example from the EIU report:

Coca Cola conducted a human rights risk analysis of its entire value chain, which identified seven priority risks, ranging from employment and health and safety issues, through to land rights, compliance with transparency and due diligence requirements.

Bradford advises along the same lines:

Corporations should independently perform a rigorous “social audit” to ascertain the current status of their human rights protective practices, the threats to human rights within their spheres of operation, and the internal procedures available to respond to change and rapidly emergent threats.

Step 2: Engage stakeholders. Engage widely with stakeholders and formalize the dialogue. The engagement should lead to a decision on a compliance strategy: a code of conduct or certification scheme that has the support of your stakeholders. Prioritize. Depending on the size of your operations, it might very well be impossible to implement ‘everything everywhere’. On engaging stakeholders, Bradford argues:

With the inputs from NGOs, corporations will be able to further refine their practices and enhance their capacities for compliance while reducing the risks of litigation and injury to reputation.

Step 3: Select suppliers. Select suppliers that are willing to work on respecting human rights. An implementation of virtually anything in your firm can never be just about ‘ticking the box’. Select suppliers that understand what you are trying to achieve and that will work with you in a longer term relationship.

Step 4: Develop KPIs. Develop KPIs together with suppliers and other stakeholders. Again, use the knowledge of your stakeholders. But do not forget to design processes and systems that can actually deliver on your KPIs.

Step 5: Evaluate. Evaluate your suppliers on a regular basis. Since you are implementing something that is also challenging for your firm, you should follow-up frequently to see if expectations are being met and evaluate progress.

Step 6: Enhance performance. Use supplier development strategies to enhance performance. Implement collaboration and training programs at the supplier, invest in assets, or offer technical and financial assistance. Informal evaluations and audits could encourage suppliers to take initiative.

Step 7: Report. Communicate your efforts and results according to the compliance strategy you chose in step 2 or integrate the results in your current ESG-report. Reach out to all stakeholders involved in step 2 and get their feedback.

Step 8:  Review. Set-up a quarterly review board. Make sure it is composed of in-house professionals and external academic, NGO expertise, and worker unions. Review performance evidence quarterly to identify patterns and explore possible solutions. Such formal review sessions might prove invaluable to organizations according to Bradford:

Over the last decade, formal and ongoing dialogues have developed wherein corporations, NGOs, government officials, academics, labour representatives, and community leaders meet to discuss issues of common concern, including monitoring of, and compliance with, CCCs [Corporate Codes of Conduct] governing the protection of human rights. Such dialogues afford corporations valuable and low cost information as to the social expectations of important stakeholders in a setting that enables the ongoing (re)negotiation of the details of broadly-based norms and principles that constitute civil partnerships. In exchange, NGOs acquire additional social status, wealth, prestige, and access. Through dialogues, corporations can calibrate their practices, learn how best to uphold their agreements, and retain the material advantages of identification by NGOs as socially responsible.

As I already argued in my blog post The Business Case for Non-Financial Reporting, disclosing non-financial information can lead to insights on how to update your business strategy or improve stakeholder relations. The discussion on implementing human rights policy – as part of the discussion on disclosure of non-financial information – has shown again that implementing sound ESG-strategies can boost your risk management, manage your reputation towards stakeholders, and enhance performance in your supply chain.

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What every manager should know about (1/5): Climate Change

before-the-flood

As your organization is getting ready for the implementation of EU guideline 2014/95/EU on the disclosure of non-financial information, I hand you a series of blog posts on non-financial topics that business managers might be less familiar with. My aim for this series of posts is twofold. First, to give you insight into concepts that are integral to non-financial frameworks on reporting, such as the Global Reporting Initiative (GRI) framework. Second, to show why and how you should integrate these specific non-financial disclosures into your overall risk management strategy.

The first blog in this series will discuss what climate change is and what climate change has to do with managing business risk. If you are in need of a broader perspective on climate change I recommend Leonardo DiCaprio’s clear and informative film Before the Flood.

Defining Climate Change

Climate Change, according to the Concise Oxford English Dictionary is:

The change in global climate patterns apparent from the mid to late 20th century onwards, attributed largely to the increased levels of atmospheric carbon dioxide produced by the use of fossil fuels.

In his insightful book Climate Change, A Very Short Introduction, Mark Maslin writes:

Over the last 150 years, significant changes in climate have been recorded, which are markedly different from the last at least 2,000 years. These changes include a 0.85°C increase in average global temperatures, sea-level rise of over 20 cm, significant shifts in the seasonality and intensities of precipitation, changing weather patterns, and the significant retreat of Arctic sea ice and nearly all continental glaciers. (…) The IPCC [Intergovernmental Panel on Climate Change] 2013 report states that the evidence for climate change is unequivocal and there is very high confidence that this warming is due to human emissions of GHGs [i.e. greenhouse gases, such as CO2].

To be able to visualize why it’s so hard to combat climate change caused by CO2, consider this illuminating analogy from Climate Shock, by Gernot Wagner and Martin Weitzman:

Think of the atmosphere as a giant bathtub. There’s a faucet – emissions from human activity – and a drain – the planet’s ability to absorb that pollution. For most of human’s civilization and hundreds of thousands of years before, the inflow and the outflow were in relative balance. Then humans started burning coal and turned on the faucet far beyond what the drain could handle. (…) Inflow and outflow need to be in balance, and that won’t happen (…) unless the inflow goes down by a lot.

Recently, we have learned (see a recent Guardian article) that the amount of CO2 in the atmosphere reached 400 parts per million (ppm); that’s 40% higher than pre-industrial levels (280 ppm). In Climate Shock we read why this is a serious problem:

Last time concentrations of carbon dioxide were as high as they are today, at 400 parts per million (ppm), the geological clock read “Pliocene”. That was over three million years ago, when natural variations, not cars and factories, were responsible for the extra carbon in the air. Global average temperatures were around 1-2.5°C (…) warmer than today, sea levels were up to 20 meters (…) higher, and camels lived in Canada.

The conclusion that we must draw from this is not that climate change is new. Rather, for the first time in the earth’s history, climate change is manmade and happens at a rate which would make it impossible for us to re-actively adapt our infrastructure accordingly. Think for example of shifting entire agricultural regions, or moving complete cities from their present-day ocean front locations.

For an illustrated (and witty) example of how extraordinary the current spike in average temperature really is, see A Timeline of Earth’s Average Temperature. Below, only the very last brief time period – with a sharp increase in average temperature – is shown; the full infographic shows much slower changing average temperatures in the last 20,000 years.

temperature

Skepticism towards climate change is like denying smoking causes cancer

Perhaps most of the general public would not see climate change as an urgent problem, as Wagner and Weitzman point out in Climate Shock.  Although the science behind climate change is solid and has been accepted by the scientific community on the weight of evidence of the research, there seems to be an amazing amount of skepticism around the subject in non-science circles. In trying to explain this phenomenon, Maslin writes:

…the media’s ethical commitment to balanced reporting may unwittingly provide unwarranted attention to critical views, even if they are marginal and outside the realm of what is normally considered ‘good’ science. (…) Add to this the greater ease of communication, from conventional media, such as newspapers, radio, and television, to more informal blogs, tweets, etc. Normal private debate among scientists and experts can easily be shifted into the public arena and anyone, what ever their level of expertise, can voice an opinion and feel it is as valid as that of experts who have dedicated their whole lives to studying areas of science. Overall, this contributes to a public impression that the science of climate change is ‘contested’, despite what many would argue is an overwhelmingly scientific case that climate change is occurring and human activity is a main driver of this change.’

Or, maybe skepticism has to do with cognitive dissonance (i.e. a state of inconsistent thought, beliefs, or attitudes), write Wagner and Weitzman:

Whenever science points to the very real potential of these types of catastrophic outcomes, cognitive dissonance kicks in. Facts might be facts, the reasoning goes, but throwing too many of them at you at once will all but guarantee that you will dismiss them out of hand. It just feels like it can’t be true.

Leonardo DiCaprio in Before the Flood echoes this:

We keep being inundated with catastrophic news about the environment every single day, and the problem seems to get worse and worse. Try to have a conversation with anyone about climate change, and people just tune out.

The key point here is that the efforts to understand climate change are a scientific effort. Maslin rightfully states that ‘science is no belief system’. As Armand Marie Leroi points out in his book, this has been true ever since Aristotle invented science:

‘A scientist is someone who seeks, by systematic investigation, to understand experienced reality.’

Being skeptical towards climate change is therefore the same is being skeptical towards the process of scientific discovery itself. It is, Maslin states, to ‘deny that smoking causes cancer, or that HIV causes AIDS’.

Climate Change and business risk management

Integral risk management for your organization should include climate change risks. As the authors of Climate Shock put it: ‘First and foremost, climate change is a risk management problem’.  A risk analysis of climate change would lead to defining business risks that stem from both the direct consequences of climate change (like more severe weather events), and risks that stem from external stakeholders’ actions to curb climate change that, in turn, have an effect on the company’s operations or profitability (e.g. tighter regulations for GHG emissions). Without making any claims of exhaustiveness, as a minimum, your organization’s risk assessment should include the following risks in a risk assessment:

risk-matrix

Asset and infrastructure risk. We already see an increase in extreme weather events that could hurt a firm’s assets and supply chains. In Climate Change, A Very Short Introduction, numerous relevant examples are given:

[I]n recent years massive storms and subsequent floods have hit China, Italy, England, Korea, Bangladesh, Venezuela, and Mozambique. In England in 2000, 2007, and 2013/13, floods and storms classified as ‘once-in-200-years events’ have occurred within 13 years and frequently within a single year. Moreover, in Britain the winter of 2013/14 was the wettest six months since records began in the 18th century, while August 2008 was the wettest on record.

Organizations could use climate forecasting models to show which assets and infrastructure are more at risk because of climate change. A next step would be to develop scenarios that would lessen the impacts on your assets and supply chains (e.g. moving operations to areas less affected by extreme weather events).

Yield and price risk. When climate change starts to affect crop yields, it will also affect purchasing prices. The IPCC (Intergovernmental Panel on Climate Change) brings together key climate research conducted all over the world and provides a consensus of this research. The IPCC, 2014 report found:

Based on many studies covering a wide range of regions and crops, negative impacts of climate change on crop yields have been more common than positive impacts. [S]everal periods of rapid food and cereal price increases following climate extremes in key producing regions indicate a sensitivity of current markets to climate extremes (…).

Your organization should know which commodities are most at risk from the impacts of climate change. This should be a starting point for developing scenarios to mitigate yield and price risks.

Government regulations. Now that the Paris Agreement has come into force, we can see governments stepping up their work to implement policies that will make sure global average temperatures well below 2°C. Barack Obama in The Economist:

[S]ustainable economic growth requires addressing climate change. Over the past five years, the notion of a trade-off between increasing growth and reducing emissions has been put to rest. America has cut energy-sector emissions by 6%, even as our economy has grown by 11%. Progress in America also helped catalyse the historic Paris climate agreement, which presents the best opportunity to save the planet for future generations.

Any policy changes that try to curb climate change will impact business-as-usual. As a mitigation strategy, organizations should try to understand possible policy options and work out the effects on operations and profitability.

Reputation risk. Awareness of climate change in general is on the rise. Whenever the public is of the opinion that the firm’s activities are harmful (this obviously extends beyond climate change), there’s a probability that profitability is at risk. For example, the big palm oil trader IOI was accused of illegal logging recently  ̶  contributing directly to climate change because of loss of rain forest that stores CO2  ̶  , experienced extreme negative publicity (see this article in the Financial Times), and saw share prices and revenues tumbling. As a first step in creating mitigation scenarios, firms should make an effort in understanding external stakeholder’s views and wishes towards the firm’s climate change actions. As the IOI example shows, reputation risk does not only revolve around emissions but also around having supply chains that contribute towards climate change by deforestation (e.g. beef, soy, palm oil, and wood fiber). Your organization should therefore not only know which operations are most at risk from the impacts of climate change (direct risks), but should also know which commodities contribute the most towards climate change (reputation and regulatory risk).

As I already argued in my blog post The Business Case for Non-Financial Reporting, disclosing non-financial information can lead to insights on how to update your business strategy or improve stakeholder relations. Reporting on climate change gives you the opportunity to update your risk management framework. By breaking climate risks down into direct and external stakeholder risks, and putting in place mitigation scenarios, your organization will be well prepared for an age where climate change is at the top of the agenda.

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3 Reasons to Use Science-Based Measures in Your Sustainability Report

planetary_boundaries_2015

In the Guardian, the case is made that current reporting practices on sustainability are a great waste of time. According to researchers, nobody actually reads sustainability reports. One of the main reasons being, that reports are impenetrable: they’re just too thick to get through.  The authors identified a number of issues with current sustainability reporting practices which could be the cause for this.

The main culprit: most companies do not have a good process in place to determine materiality. The outcomes of a materiality assessment determine which aspects are to be included in your sustainability report.

One thing researchers missed, which could address both their worry that ‘sustainability reporting has stalled’ and help further discussions on the materiality issue, is the use of science-based metrics in sustainability reporting. I see a number of frameworks arising that all seem to stem from Johan Rockströms’ famous article in Nature, called ‘A safe operating space for humanity’. The premise is beautifully simple:

To meet the challenge of maintaining the Holocene state, we propose a framework based on ‘planetary boundaries’. These boundaries define the safe operating space for humanity with respect to the Earth system and are associated with the planet’s biophysical subsystems or processes. (…) Many subsystems of Earth react in a nonlinear, often abrupt, way, and are particularly sensitive around threshold levels of certain key variables. If these thresholds are crossed, then important subsystems (…) could shift into a new state, often with deleterious or potentially even disastrous consequences for humans.

In short:  we need boundaries – sufficiently underpinned by science – for Earth’s relevant subsystems and processes to continue using the Earth for our resource needs. Boundaries do have to be properly translated for use in existing models (such as the Global Reporting Initiative’s G4 Guidelines). Also, the boundaries must correspond with a firm’s size – as yardsticks against which to measure a companies’ sustainability effort.  This gives us the ability to benchmark a company’s progress against the reality in which it operates. A number of science-based frameworks are already adopted by some of the world’s leading companies on sustainability, e.g. Science Based Targets (Coca-Cola, Dell and Carrefour among many others), One Planet Thinking (Eneco) and Context Based Sustainability (Ben & Jerry’s).

I give you three reasons why your business should include science-based measures and boundaries in its non-financial or sustainability report.

1.     Make your report more relevant by showing your relative impact

The Guardian argues that most sustainability reports do not really invite us to continue reading. I tend to agree. Just pick-up a random sustainability report and you’ll be sure to get lost in tables, charts, figures, and the ubiquitous pictures of smiling, happy people. You immediately wonder how you should put together all these stats and figures to reach a conclusion on the companies’ sustainability efforts. Or, what I often ask myself: why do the things this company does towards sustainability matter at all? What is their impact if you would compare this to the size and scale of their value chain? By including science-based measures and boundaries, you show what your firm is achieving against objective yardsticks. In turn, it’ll make your sustainability report more relevant and credible to your stakeholders and investors.

2.     Show that your business is not ‘greenwashing’

Sustainability reporting is still often seen as a greenwashing operation. Although a claim of greenwashing is actually almost always too severe an accusation considering the definition of that word – ‘misleading information disseminated by an organization so as to present an environmentally responsible public image’ – I hear the term a lot when talking about the sustainability efforts of organizations.

I believe that the term greenwashing is used by the general public, because it is difficult for companies to understand which elements to focus on in their sustainability reporting. This leaves space for stakeholders to wonder about all of the sustainability elements companies chose not to include.

In the article ‘Raising the Bar on Corporate Sustainability Reporting to Meet Ecological Challenges Globally’, the United Nations Environmental Program raises similar doubts about the effectiveness of sustainability reports:

(…) the quality of these reports is insufficient to represent the full impacts of a company’s use of resources and materials on the environment and on communities.

And:

“Corporate sustainability reporting needs to be rapidly elevated from focusing on incremental, isolated improvements to corporate environmental impacts,” said Arab Hoballah, Chief of UNEP’s Sustainable Cities and Lifestyles Branch. “It should instead serve to catalyze business operations along value chains to achieve the kind of transformative change necessary to accomplish the Sustainable Development Goals and objectives by 2030. This is precisely what is needed to encourage countries and companies to act effectively at their respective levels.”

Moving towards more contextual-based reporting – i.e. taking into consideration both boundaries and the impact that is expected from your organization in respect to its size and span of your value chain – will surely make your organization less susceptible to charges of greenwashing and will make your positive impacts (or the steps you take to mitigate negative impacts) clearer to your stakeholders.

3.     Safeguard your business against the Slippery Slope argument

Activist NGOs surely serve a purpose in raising important topics. However, their solutions might go a bit far at times. The way activist NGOs attack businesses often reminds me of something Theodore Dalrymple wrote (on an entirely different topic but the words resonate):

I was still of the callow – and fundamentally lazy – youthful opinion that nothing in the world could change until everything changed.

Hardin, in his magnificent Filters Against Folly, called this the Slippery Slope argument:

The punch line goes by many names, among which are the [The Camel’s Nose,] Thin Edge of the Wedge, and the Slippery Slope. The idea is always the same: we cannot budge a millimeter from our present position without sliding all the way to Hell. (…), the fear of the Nose/Wedge/Slope is rooted in thinking that is wholly literate and adamantly antinumerate.

Hardin goes on to call this the demand for absolute (or extreme) purity:

The greed of some enterprisers in seeking profits through pollution is matched by a different sort of greed of some environmentalists in demanding absolute purity regardless of cost.

And:

When costs are paid out of a common pot, extreme purity in one dimension can be achieved only by impoverishment or contamination of others. Trying for too much we achieve less. Rational limits must be set to every ideal of purity.

Thus, Hardin states that everything that we do will lead to some unwanted consequences. Our actions need to be analyzed with the right terminology (‘literacy’), but, on top of that, we will also need the right measures (called ‘numeracy’; for more on these very useful terms, also see my blog The Business Case for Non-Financial Reporting).

Numeracy doesn’t just mean quantifying things; it means making the numbers relative to certain boundaries that give the numbers meaning. Using science-based measures to show the performance of your business towards certain boundaries or limits makes for a compelling argument to counter any Slippery Slope argument. In a way, what you are doing is making both ‘purity’ and ‘pollution’ more relative. Now, it can be measured and actions can be discussed and taken more objectively.

By way of conclusion: moving closer to a world we want

I have given you three reasons why you should consider moving towards science-based measures and boundaries in your non-financial reporting. As I already argued in a previous blog post, see Beyond Shareholder vs. Stakeholder Value, a firm’s main purpose is to provide maximal value to the economic system, but it should do so by adjusting to changing stakeholder demands. I believe moving to science-based measures and boundaries is the next step in these stakeholder demands and could take non-financial reporting to the next level, benefiting both companies (through the three reasons I gave you) and society as a whole (by introducing planetary boundaries).

Including science-based metrics will not solve everything, but let us see it as the next step and acknowledge that we cannot solve all issues at once. To paraphrase Theodore Dalrymple, moving forward, let us be:

realistic without being cynical, and let us be idealists without sounding like utopians.

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The Business Case for Non-Financial Reporting

With an EU directive on non-financial disclosure now being translated into national legislature, social and environmental reporting seems to become a reality for an increasing number of organizations. Although it still isn’t mandatory for all companies to disclose non-financial information, the trend is clearly towards greater disclosure. In this month’s piece, I argue that your organization should start reporting on social and environmental topics even if regulators aren’t (yet) requiring this.

What’s the current status on non-financial reporting? The EU directive states that listed companies, banks and insurance firms will all have to disclose non-financial information on environmental and social topics. My guess is that it won’t stop there: the Netherlands is already opting to extend the scope to other public-interest entities such as pension funds, housing associations and utility firms.

Beyond the group of organizations already mentioned, other firms are also experiencing increasing pressure from stakeholders to disclose more information on their operations and supply chains. Whatever the reason (e.g. regulation, pressure from stakeholders, or maybe even new worldviews such as radical transparency or the purpose economy), companies are faced with mounting pressures to report beyond mere financial statements. We could see this as an increased attention to the distribution of “goods” and “bads” as Garrett Hardin already pointed out in his 1985 classic Filters Against Folly:

Every human activity produces both things that we want – “goods” – and things we don’t want – “bads”. How should society distribute these goods and bads?

Hardin goes on to argue that:

.. most people living today would say that even if it is historically true that the widespread externalizing of business costs was causatively responsible for the rise of modern civilization, we cannot, from here on out, tolerate the practice. Regardless of the past, future policy must insist on internalizing the cost of production.

It seems that with recently implemented policies like the EU directive on non-financial disclosure, the future that Harden writes about in 1985 is becoming a reality.

Two concepts that Hardin introduced in Filters Against Folly show that you can use non-financial reporting as an opportunity to boost the competitive advantage of your organization.

Non-financial reporting to update your business strategy

A useful mental model in analyzing the business world is what Hardin calls the “Double C–Double P Game”, which stands for commonize costs and privatize profits. (Commonizing here means the spreading of the cost of an activity over a population no matter who profits from the cost. Privatizing means the profit from activities accrues to the company, and the company alone.) This model seems to be under attack with the increased attention of stakeholders to disclose which costs are commonized (e.g. land and water use, CO2 emissions, etc.) and which profits are privatized (see the discussion on the relationship between tax evasion and corporate social responsibility in The Economist).

Although the increased scrutiny of stakeholders can seem troublesome to many an organization in terms of increased effort to dig up information from every nook and cranny of operations, I see opportunities to actually use it for a renewed look at the company’s strategy and perceived competitive advantage.

There are numerous frameworks available to help an organization structure its non-financial reporting, these include ISO 26000, the United Nations Global Compact and the Global Reporting Initiative. Rather than just use these as reporting guidelines, a company can actually use these frameworks to understand where it may be losing ground in the “Double C–Double P Game”. You may ask yourself which topics need more attention because costs are becoming increasingly internalized, or how you can continue privatizing the profits of the operations you undertake. Social and environmental analysis might prove indispensable in effectively adjusting your business strategy to accommodate  a new business environment where your current business’s specific and carefully crafted “Double C-Double P Game” is losing ground.

Non-financial reporting to build better stakeholder relations

In addition to the benefit of building a strategy matched to the new business environment, there is a second opportunity in reporting on non-financial performance. If done well, a company might actually improve the relationship with all stakeholders by melding together what Hardin calls numeracy, literacy and ecolacy filters. Companies might be under attack from differing interest groups that are biased toward using one filter only. Literacy, for example, can do much harm if it is not accompanied by numeracy to put statements into perspective. Hardin explains:

There is no royal road to rationality. Whatever means we are tempted to use, we must be wary of the poetic approach. Rhetoric (..) may give one a wonderful “oceanic feeling” (to use Freud’s term), but this feeling is more likely to prevent than to facilitate advances in understanding. It is when ecological rhetoric is most beautiful that we must be most on our guard.

And, again about abusing literacy:

.. the wish to escape debate disguises itself under a multitude of verbal forms: infinity, non-negotiable, never, forever, irresistible, immovable, indubitable, and the recent variant “not meaningfully finite.” All these words have the effect of moving discussion out of the numerate realm, where it belongs, and into a wasteland of pure literacy, where counting and measuring are repudiated.

Of course, the company itself should also avoid vague words and terminology. One of the techniques proposed by Hardin to make clear what is actually meant, is operationalism:

Faced with conflicting views, the critical analyst asks, “What operations are implied by these statements?” Once the operations are made clear, difficulties usually evaporate.

After answering the question ‘What do thew words actually mean’ (i.e. literacy), Hardin further proposes to go beyond mere numbers to numeracy:

In spite of its name, numeracy is concerned with more than numbers. The relative size of quantifiable factors is often more important than their exact measures. The importance of scale effects can be appreciated with little actual measurement.

He gives an example where the numerate filter is a useful addition to the literate filter:

Dichotomies are favored over quantities. It is so comforting to divide polluting substances sharply into the categories of “safe” and “unsafe”. (..) Nature is silent. Nature does not tell us when “safe” slips over into “unsafe”; men and women, reasoning together, must legally define “unsafe”. (..)“Safe” and “unsafe” are literate distinctions; nature is numerate. Everything is dangerous at some level. Even molecular oxygen, essential to human life, becomes lethal as the concentration approaches 100 percent.

Finally, Hardin proposes to combine literacy and numeracy with ecolacy ‘to ferret out at least the major interconnections’. With ecolacy we ask the basic question “And then what?” to sort out what the unwanted consequences are ‘to grant a modicum of justification for the position of society’s nay-sayers’:

Excessive ecolacy can lead to conservatism of the most stultifying sort. For prudence’s sake, ecolacy must be combined with numeracy. Any action that we take – and inaction is a form of action – leads to some unwanted consequences. Prudence dictates that we compare the advantages and disadvantages of all proposed courses of action, choosing the one that, on balance, is quantitatively best.

By using non-financial reporting not as ‘just another report’, but as an actual effort to communicate through multiple lenses (i.e. literate, numerate and ecolate), I see huge opportunities in creating a more effective strategy, and better stakeholder relationships with fewer controversies.

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