Episode 74: Transparency with Dan Saccardi & Kathy Mulvey (Ceres and The Union of Concerned Scientists)

Episode Intro Notes

Outline

• What is Transparency?

• What is the importance of transparency in sustainability? 

• What are the expectations of key stakeholders - like investors, consumers, and employees - around transparency in Sustainability? 

• Is there guidance and rules around sharing sustainability information and performance?

• What level of transparency exists in sustainability information?

• What are Good (and Not so Good) examples of Transparency in Sustainability?

• Guest Interview with:

• Dan Saccardi, Program Director, Company Network at Ceres

• Kathy Mulvey, Accountability Campaign Director, Climate & Energy Program, at the Union of Concerned Scientists 

What is Transparency?

• SustainLab, a sustainability management platform, defines data transparency as “the practice of making data easily accessible and understandable to all.” Transparency simply is sharing data or information with your stakeholders - both internal and external to the organization.

• Transparency and disclosure is a key principle for other sectors, and not just for sustainability, but today’s conversation is more focused around how businesses are tackling this topic. 

• Historically, businesses have kept information guarded and not in the public view. Many companies did this because they believed their information was trade secret, others just didn’t want questions from external stakeholders about their operations or data. Lately however, there has been a shift toward businesses reporting more than ever, especially on the topic of sustainability. Many companies are taking this to new levels by sharing detailed information and data, beyond legal requirements, and making it freely available to everyone. 

• Transparency for businesses however isn’t just simply reporting on whatever you feel like. NeilsenIQ research states that transparency on sustainability involves companies sharing details about their products or services - what are their ingredients, how are they manufactured, what is the impact (positive and negative) on people and the environment. It also involves being forthright and honest about the business’ performance on environment, social, and governance topics both internally and within its supply chain.

What is the importance of transparency in sustainability? 

• So you may be asking yourself, why is transparency on sustainability from companies even needed? Worldfavor, a global sustainability platform that helps companies drive sustainability and transparency within the value chain, presents four main reasons as to why corporate transparency is needed. 

• The first being that transparency helps everyone better understand reality. The age old saying here is that “knowledge is power.” The more that companies know about their footprint and environmental impacts, the easier it is to make meaningful, data-driven sustainability decisions. 

• Next, transparency can help motivate corporate action. Knowing and understanding where the baselines are can help to move entire industries along. Companies are forced to take action and be proactive when they lay all of their cards out on the table. Simply put, transparency = accountability. 

• Third, Worldfavor asserts that transparency is necessary for consumer trust. 

• We’ll talk about this a lot more soon, but there are trends that show that consumers have their eyes on companies more than ever - especially when it comes to sustainability. Consumers today are very interested in company values and actions towards sustainability, and they want to be informed.

• Currently, business seems to be performing pretty well on trust. The 2022 Edelman Trust Barometer showed that business has become the most trusted institution (61%). Followed by NGOs (59%) and governments (52%) - the media, only 50% .  

• But if business is seen as non-transparent, that trust score could falter and they could lose business too. Recent research shows that more than 80% of shoppers want to buy from brands with values that align with their own. 

• Last but not least, transparency can lead to collaboration and cooperation. Transparency often leads to collective action and, as we know, complex issues like climate change and addressing supply chains cannot be addressed alone. 

• So to summarize, transparency is needed to

• understand the current reality,

• motivate corporate action,

• earn consumer trust, and

• foster collaboration and cooperation.

What are the expectations of key stakeholders - like investors, consumers, and employees - around transparency in Sustainability? 

• There is a growing demand for more data disclosure. Stakeholders like consumers, investors, and employees are driving forces for corporate transparency. Let’s look at the expectations and demands around transparency of each of these groups.

• Let’s start with consumers, who have become more and more educated over time. The demand for transparency is growing as consumers are becoming more critically aware of issues like climate change, social inequalities, and biodiversity. It is not just enough for companies to put recycling labels and vague claims on a product or to make broad statements about their commitment to diversity and inclusion. It is important that they have data to back up these claims and about the progress they are making.

• Transparency, or lack thereof, is making a true impact on purchasing decisions for today’s average consumer.

• 2022 Sustainability Transparency research from NielsenIQ notes that almost two out of three shoppers say they would switch from a brand they normally buy to another if there is more in-depth product information, even if that information is not on the label, but on a company website or social media. Consumers often are turning to the internet to learn more about companies and their products before making purchasing decisions. While price and affordability still remain high priorities for consumers in choosing what to buy, the consumers surveyed in this study next ranked environmental and sustainability credentials alongside social responsibility, ingredients, and supply chain.

• We saw a lot of this pressure for accountability from consumers via social media  just a couple of years ago on social justice issues. 

• ‘Pull up for Change’, a grassroots social media campaign was launched in 2020 calling for companies, beauty brands specifically, to be transparent about the demographics of Black and Brown people at the corporate and executive levels. Sharon Chuter, a beauty executive herself, saw all of the bold statements companies were putting out in support of diversity within their organizations, but couldn't easily find data disclosed anywhere about diversity and inclusion from those same companies about tangible actions. So she took to social media and garnered the support of hundreds of thousands of consumers who demanded that those companies who put out a statement become more transparent and  release statistics on diversity and inclusion at the employee and executive level and also challenged companies to disclose about their donations and partnerships with BIPOC people and organizations. As a result, companies like Nike, Sephora, P&G Beauty, and others released more detailed information about their employee breakdowns for the first time in history.

• In summary, from a company perspective, being more transparent not only provides brand loyalty and trust, but it can also bring you more customers if they see a certain company leading and have tangible evidence the company's values align with those of their own. 

• Next, let’s turn to investors, who like consumers, are seeking more information about the companies they are investing in and using public data to fuel where they put their money. For the big institutional investors like Vanguard, BlackRock, and State Street, transparency and reporting from their portfolio companies is no longer optional, as they want sustainability data to assess the risk and opportunities companies pose to their investments. 

• BlackRock, a company with $10 trillion in assets under management, is actually gathering data for its clients. It wants investors to have full visibility into the sustainability risks of their investments by providing information such as sustainability scores and carbon footprint information for each company under their purview.

• For those listeners interested in making their investments more in line with sustainability, check out episode #65 on personal sustainable investing.

• Lastly, let’s go internal and talk about the employees at these companies. Employees are becoming an increasingly important stakeholder in transparency since they are starting to make decisions to work at a company based on its disclosures and performance. 

• One UK study found that 77% of people want the company they work for to be more transparent about environmental impact. Many employees don’t believe that their employer has genuine or impactful sustainability initiatives, but wish they would.

• Further, the 2022 Global Gen Z and Millennial Survey from Deloitte found that the Gen Z and Millennial generations especially are pushing for climate action within their own organizations. Over 40% of both groups have put pressure on their employer to take action on fighting climate change. They overwhelmingly do not want to work for companies that are lagging on addressing key environmental and social issues.

• Further research from Deloitte found that 65% of business leaders are feeling the need to act on sustainability and transparency due to pressure from employees. 

• Bill Wiehl, former sustainability lead at Facebook, started ClimateVoice a couple years back to proactively engage employees at big companies on how they create pressure from the inside-out to act on climate. Employees making their transparency demands clear can lead to changes in disclosure. 

• Consider when over 8500 employees wrote an open letter to Jeff Bezos and the Amazon Board of Directors in 2019, calling for the adoption of a new company-wide climate action plan. The employees didn’t believe that Amazon was doing enough to address the climate crisis, so they banded together asking their leaders to do more and publish more information about sustainability. As a result of that effort, Amazon released its 2018 carbon footprint publicly and has continued to do so in the years since. 

• In short, good transparency is good business as it satisfies the demands of key stakeholders like consumers, employees, and investors. 

Is there guidance and rules around sharing sustainability information and performance?

• The call to action is pretty clear: businesses should identify the areas of sustainability most important to their stakeholders and communicate actions, strategy, and progress in these areas transparently. But what guidance and rules exist on how they communicate and what needs to be disclosed?

• Many reporting standards and frameworks exist for sustainability, and while we won’t go into all of them here (that could be a whole episode by itself!), it is most important to note that the majority of these reporting standards are voluntary - meaning companies don’t have to engage on sustainability topics at all if they don’t want to. However research into the S&P 500 showed that 93% of companies issue some sort of ESG or sustainability report using at least one framework or standard. Let’s look at two of the common voluntary reporting frameworks companies use:

• The GRI or Global Reporting Initiative framework is a global reporting standard that follows a multi-stakeholder process that helps companies be more transparent about their impacts. Over 10,000 companies across the globe use this framework to share their sustainability risks, opportunities, and progress.

• Another reporting framework is CDP, formerly the Carbon Disclosure Project. This framework is an investor-led organization that allows both companies and governments to disclose their environmental impacts and take action. Over 13,000 companies typically respond to CDP questionnaires annually and in 2022 over 680 investors, representing $130 trillion in access requested company disclosures via the CDP platform. 

• The CDP framework not only allows for disclosure, but it also uses the data that is supplied from companies to score the companies from A to F on each target area. There is some competitive pressure from companies in the same industry or sector to perform well each year as the letter grades are made public for companies on the CDP website.

• 87% of companies that responded to the CDP survey in 2021 noted that their disclosure within the platform helped their organization become more transparent about environmental impact. 

• Certifications are another way the companies can increase transparency with their stakeholders. Underneath many labels (though not all), there is credibility via data, performance requriements, and third-party validation. Some certifications you may have seen are Forest Stewardship Council, Cradle to Cradle, and Green Seal. 

• While the frameworks and certifications we’ve discussed are voluntary, the legal and regulatory landscape is evolving to where sustainability disclosure will be required of certain companies.

• Our European friends are leading the way. The Corporate Sustainability Reporting Directive (CSRD) is a policy requiring large companies who operate in the EU to disclose their sustainability and ESG information annually. This policy adopted in 2022 builds on existing legislation providing detailed reporting requirements for companies around the environment, human rights, and social standards. The policy goes further and details that companies will also need to undergo audit and certification schemes to ensure that the information they are providing is reliable and outlines that there must be digital access to the sustainability information that is required. Compliance with this regulation will be required for all large companies and even non-EU companies with significant activity in the EU. These new regulatory rules will begin to be rolled out in 2024. 

• In the U.S., many are following the U.S. Security and Exchange Commission’s rulemaking process around climate disclosure. The rule is set to enhance and standardize how companies report on climate-related risks, emissions, and net-zero transition plans. A lot of attention has been on whether the SEC will require companies to disclose scope 3 (i.e., supply chain) emissions.

• More on Scope 3 emissions in episode #25.

• So we talked about guidelines around voluntary and mandatory disclosure but what about rules on how to communicate what you’re disclosing and marketing?

• In the United States, the Federal Trade Commission (FTC) Green Guides provide guidance to marketers on what claims are not deceiving under the FTC Act. For example, it explains when marketers can say a product has a certain third-party certification, a product is compostable, and a product is recyclable. On that last point, for example, the FTC says a company can say a product is recyclable if 60 percent of consumers or communities where the product is sold have access to a recycling program that accepts that product.

• Keep an eye out for updates to the FTC Green Guides as an announcement regarding a revisions process was made in December 2022.

What levels of transparency exist in sustainability information?

• We’ve detailed why transparency is so important, what company stakeholders are looking for, and what guidance exists. But let’s get to the heart of it–how transparent are companies in practice?

• While some companies are leading the charge on transparency, some are refusing to put out any detailed metrics. Oftentimes lack of transparency is a result of lack of collaboration, lack of data, and lack of pressure from stakeholders.

• CDP, the reporting platform we mentioned earlier has 13,000 companies disclosing through their annual reporting mechanism. However, the organization notes that there are more than 29,500 companies that have failed to respond to their disclosure requests or have provided insufficient information. These include big companies like ExxonMobil and Tesla, but also smaller or privately held companies that don’t have as much pressure to talk about their environmental progress externally.

• Additionally, further research from CDP notes that while 49% of European companies report having an ambitious science-based climate transition plan in place, less than 5% actually disclose against most key indicators showing a credible plan exists. Further, the research found that up to 40% of all outstanding corporate loans to companies analyzed (75% of the European stock market) currently finance companies without clear targets or evidence of developing credible transition plans. So while there is intent there, often there is not the data to back up the claims that these companies are making, which limits the transparency around climate action.

What are Good (and Not so Good) examples of Transparency in Sustainability?

• A company desiring to increase transparency is one thing, it actually backing it up with facts, truth, and data is another. Talking a big sustainability game without backing it up could be labeled as “greenwashing”, a term that you’ve likely heard. The term was actually added to the Merriam-Webster dictionary and is defined as “the act or practice of making a product, policy, activity, etc. appear to be more environmentally friendly or less environmentally damaging than it really is.” It happens when environmental claims are presented with a lack of evidence to appear better for the environment. 

• Unfortunately, there are many Greenwashing examples. An earth.org article on what is greenwashing details several. One that stood out to us is an example from Nestle where it released a report in 2018 saying that it had “ambitions” for its packaging to be 100% recyclable or reusable by 2025, but it had no clear targets, timeline, or efforts to enhance consumer recycling access. Then Greenpeace put out a statement saying, “Nestlé’s statement on plastic packaging includes more of the same greenwashing baby steps to tackle a crisis it helped to create. It will not actually move the needle toward the reduction of single-use plastics in a meaningful way, and sets an incredibly low standard as the largest food and beverage company in the world.” Yes, very Greenpeace, but this sort of fear of shaming can make companies think twice about greenwashing.

• For those definers interested in the latest with Nestle, we’ll link in the show notes on sustainabilitydefined.com to a March 2023 WasteDive article titled “Inside Nestle’s Long Road to Improve the Sustainability of its Packaging Footprint.”

• Interestingly, fear of attention on its actions is also one reason for the rise of what’s been called “greenmuting” or “greenhushing.” This is where companies under-communicate their sustainability activities.

• So what does good sustainability communication look like?

• Our friend Joel Makower suggests the CRED strategy will give you cred (classic Joel joke) in sustainability communications. CRED is an acronym.

• Credibility: Why should anyone believe us?

• Relevance: How can we leverage sustainability to create value?

• Effective messaging: How do we translate complex data into compelling messages?

• Differentiation: Do we have unique goals and achievements?

• We also found a 2022 journal article titled “Do Not Forget the ‘How’ Along with the ‘What’: Improving the Transparency of Sustainability Reports.” It offers up four stages of transparency–sharing, connecting, embedding, and co-creating. We especially liked its list of innovative reporting mechanisms and examples of each. Here’s two:

• One mechanism is traceable product-level performance and impacts.

• An example is VF Corporation’s traceability maps. You can see a product’s global supply chain (e.g., listing details for factories, textile mills, material suppliers, distribution centers) and key sustainability features (e.g., energy and water efficiency, recycled materials, community, chemicals), as well as the date information was updated.

• Another mechanism is learning, lessons, and perspective.

• The article notes H&M’s sustainability disclosures all include “Learnings & future focus” insights that highlight the negative impacts and challenges associated with their garments. One, for example, suggests that “tools such as laundry bags do not provide a long-term solution to microfiber emissions. We know we need to continue to research new materials and processes that prevent shedding, rather than removing microfibers during the washing cycle.”

• In general, when we look at sustainability websites and reports, we’re looking for clear depiction of goals with measurable targets and deadlines as well as clear reporting on current status. Keep an eye out for that and don’t get caught up in long, glossy reports or flowery language.

Interviewees: Dan Saccardi and Kathy Mulvey

• First you’ll hear Dan Saccardi, Program Director, Company Network, at Ceres

• Ceres is a nonprofit organization working with the most influential capital market leaders to solve the world’s greatest sustainability challenges. 

• Dan joined Ceres in 2016. The Ceres Company Network includes major corporations committed to driving sustainable business leadership by taking action to stabilize the climate, protect water and natural resources, and built a just and inclusive economy. By leveraging Ceres’ unique access to investors, companies, and other advocacy organizations, Company Network members realize a competitive advantage by integrating stronger environmental, social, and governance practices into their core business strategies.

• Before joining Ceres, Dan spent nearly ten years at several sustainability strategy companies working with companies in diverse industries. He started his environmental career at the nonprofit Natural Resources Defense Council.

• After Dan is a brief interview with Kathy Mulvey, Accountability Campaign Director, Climate & Energy Program, at Union of Concerned Scientists (UCS)

• At UCS, Kathy leads strategic development of UCS’ climate corporate accountability campaign, guides engagement with corporate targets, builds national and international coalitions, and mobilizes experts and supporters.

• Kathy has designed and led various corporate accountability initiatives, programs, and campaigns since 1989 (in other words, basically as long as Jay and Scott have been alive).

• In addition to her work at UCS, Kathy chairs the Socially Responsible Investing Committee for the Unitarian Universalist Association and serves on the Board of Grassroots International.

Resources Mentioned in the Interviews

• Union of Concerned Scientists Science Hub for Climate Litigation

• Ceres Roadmap 2030

• General Motors ESG Resources Hub where you can pull reports on specific topics