Sustainability trends to follow

D&I Quarterly Q2/2019

Posted on

18 Jun


D&I Quarterly

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D&I Quarterly.

This article is part of a selection of our experts’ articles published during Q1-Q2 here at D&I Insight, our platform for insight into all the latest in law and business.

Dittmar & Indrenius > Insight > Sustainability trends to follow

Sustainability is here to stay. Faced with a future of climate change, companies all over the world have confirmed that environmental sustainability is a key consideration. At the same time, those same companies are becoming more aware of their role in society. Companies therefore continue to expand their activism on, and investment in, the issues that matter to their stakeholders. Here are some key sustainability trends to look for in Finland.

Number one concern: Climate change

According to a recent study of Finnish Business & Society (FIBS), 58% of the Finnish companies consider climate change to be their biggest sustainability challenge.

This is not a surprise. It has been estimated by the UN Intergovernmental Panel on Climate Change (IPCC) that we may have as little as 12 years to limit climate change. The world does not change unless also companies change, says, for example, Peter Vanacker, CEO of Neste Corporation.

Along these lines, companies are likely to invest more resources into prevention, mitigation and climate resilience. Most importantly, climate change is considered a common concern irrespective of the business sector. This means action is taken by all kind of companies and in various ways. To take an example, we have seen only the beginning of cost-cutting to flights in the corporate sector.

#MeToo and diversity initiatives

The #MeToo movement began to spread  in October 2017 to address the widespread prevalence of sexual harassment, especially in the workplace.

If 2017 was about speaking aloud, 2018 was in many companies focused on concrete change, for example in terms of internal policies and addressing workplace inequality. In 2019, there is still a lot to do, and many of the cases that were brought to court following #MeToo allegations are still pending. However, change in the attitudes can already be seen.

The past years have been a landmark for women, but diversity initiatives need to address much more. As the workforce continues to grow more diverse, companies will need to focus on creating company cultures that speak to a wide range of perspectives. Recent studies confirm also the competitive advantages to organisational performance of diversity in e.g. gender, age, perspective, background, professional experience and ethnicity.

To make diversity efforts effective requires clear strategies. This will likely be on the agenda of many companies in the near future. We will also see an increase in the number of companies ramping up their diversity hiring efforts.

Call for management involvement

Sustainability is increasingly positioned at the top of board agendas. From a legal perspective, sustainability can be seen as part of the corporate benefit that should always be taken into consideration in the decision making of a board. This approach has been taken forward by some recent studies in Finland and it is likely to affect the way a board addresses its responsibilities.

Boards are in a unique position to connect sustainability also with corporate purpose and strategy. Once the value of sustainability is established, the business case will easily follow. With growing investor attention to sustainability, it is considered central to corporate competitiveness as well.

Of course, in order for a board to take action, also management must be involved. This seems to be still a challenge, as sustainability is not always integrated into business operations, and it is often addressed only as a separate matter. This might be an area where we will see most development in the near future.

Reporting and sustainability statements as the new normal

Reporting has long been one of the first sustainability actions a company decides to take. The value of sustainability reporting is that it ensures companies consider their economic, environmental and social impacts, and enables them to be transparent about the risks they face.

As of 2018, EU law has required large companies to disclose information on the way they manage social and environmental challenges. Many companies also disclose their Codes of Conduct and environmental, social and governance (ESG) policies. The existence and application of such policies are of growing interest also to investors in connection with acquisitions and other corporate transactions.

Although some smaller companies still apply a “wait and see” approach to sustainability reporting, it can be estimated that more and more companies prepare at least some kind of sustainability statement and make it available as a part of their corporate information. In a world where stakeholder expectations continue to evolve, being entirely silent is risky. If a company fails to tell about its sustainability practices, someone else will tell the company’s story.

“This (Sustainability) will require more and more involvement also by legal experts.”

Human rights – from voluntary to legal compliance

The UN Human Rights Council adopted the UN Guiding Principles on Business and Human Rights in 2011. Since then, there has been a consensus that human rights are not the sole responsibility of nation states. Global corporations and their suppliers must also respect human rights.

Although many Finnish companies already take note of their human rights impact, there are companies that have hardly implemented the UN Guiding Principles. This is one reason why legal human rights initiatives have raised popularity around Europe. Currently at least France and the Netherlands have addressed companies’ human rights challenges through legislation.

According to the Government Programme published by the new Finnish Government in June 2019, a human rights law might well be a reality also in Finland within the next four years. The legal approach to companies’ human rights responsibilities is being addressed initially also by the EU. For example, the Shadow EU Action Plan on the Implementation of the UN Guiding Principles within the EU was published in March 2019.

Regardless of the outcome of these legislative proposals, human rights are likely to be one of the most discussed sustainability topics in the future – not least, because human rights are related to the effects of climate change, too. This will require more and more involvement also by legal experts.

What else to look for?

In 2019, investors continue to be interested in the sustainable finance market. Sustainable finance, as it is often defined, means any form of financial service which integrates ESG criteria into business or investment decisions.

Regulatory initiatives for sustainable finance will be in a particular focus during the next months, driven by the European Commission’s efforts to create and regulate a green finance taxonomy. This will be high on the agenda also during Finland’s EU presidency in autumn 2019.

While there are also many other trendy – and important – topics for sustainability actions, it is important to note that sustainability is not only “what” companies do, but also “how” they act. Recent years have witnessed the emergence of corporate activism. More than ever, dividing lines between activism and business are blurring, as companies become a force for fighting for social and environmental issues.

This is particularly true in the US where Donald Trump’s policies provoke the corporate world, but corporate activism is on the rise also in Europe. The change is driven by both market forces, including stakeholder pressure, and value-based leaders. Participation and partnerships are often the first signs of this change. In Finland, we may, for example, expect to see more companies collaborating on initiatives to drive improvements in reasonable business practices or participating with pride in Helsinki Pride.

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