Climate Change and Sustainability Services
The CCaSS newsletter is a monthly look at issues and trends related to climate change and sustainability that are relevant to your business. If you are interested in receiving this in your inbox please email Heather McLeish at Heather.McLeish@jp.ey.com
E-Newsletter December 2016
UN Forum on Business and Human Rights 2016
The fifth annual UN Forum on Business and Human Rights took place against a backdrop of the Trump election and Brexit, and saw Professor John Ruggie and the Swiss President Scheider-Ammann deliver slightly differing messages. However, with a record 2500 participants gathering in Geneva from business, government and civil society, the momentum surrounding the business and human rights movement shows no signs of slowing.
The fifth annual UN Forum on Business and Human Rights in Geneva was held on 14-16 November 2016 and attended by 2,500 participants from government, business, civil society, law firms, investors, trade unions, academics and the media. The number of participants has steadily increased every year since the first forum in 2012 attended by 1000 people, as has the percentage of attendees from business, now representing 24% of attendees.
This year saw a record number of attendees from Japan. A delegation organised by the UN Global Compact Local Network Japan and supported by EY Japan fielded 5 Japanese companies, and three more attended in addition. Ms Minako Suzuki of Sumitomo Riko was invited as a panellist to discuss Sumitomo Ricoh’s progress on implementation of the UN Guiding Principles on Business and Human Rights (“Guiding Principles”).
The Japanese government publicly announced for the first time that it planned to formulate a National Action Plan on Business and Human Rights (NAP) “in the coming years”. A NAP sets out what a government intends to do to implement its duty to protect citizens from human rights abuses by companies, and can include new legislation and/or guidance. The UK Modern Slavery Act was, for example, one of the ways that the UK government implemented its 2013 NAP.
Of course, many attendees were anticipating discussion of how events such as Brexit and the election of Donald Trump may affect self-imposed and regulatory limits on corporate behaviour. In his address to attendees, the Swiss President Scheider-Ammann touched upon these events before taking a clear stance in favour of free trade. He went as far as to state that free trade must serve as a prerequisite to the realization of human rights, as free trade represents, in his view, the only recipe to lift millions out of poverty. During and following the Forum, some participants and commentators noted that his speech differed significantly from the analysis made the day before by Professor John Ruggie (author of the Guiding Principles) in his opening speech: Ruggie emphasized that following these events and in the face of the overall uncertainty generated by globalization, corporations should focus more than ever on respecting human rights as a means to reduce poverty and regain trust.
At the same time, it is fair to say that the anxiety of many European companies was palpable at the Forum: regulation, including with extra-territorial application, is on the rise in Europe, as is civil society scrutiny of business activities at home and abroad. If the USA reduces regulation and/or pressure on its own companies, European companies will be left with what they fear will be an increasingly uneven playing field. In some respect those concerns may be unwarranted: many US multinationals have invested heavily in sustainability, including human rights impact management procedures, incorporating them into mid to long term business plans. Moreover the very crux of the business and human rights agenda is the need to go beyond domestic regulatory compliance, and to take responsibility for respect for rights even where governments do not act. As such, it would be surprising if US multinationals reverse their position and plans around human rights due diligence based on the election results.
Turning to the content of the Forum sessions, from its origins as a setting to discuss why business should respect human rights, and, for some, to air grievances, the Forum and the discussion have matured considerably in the intervening four years: the need for business to respect rights is taken as a given, and the discussions have by now moved from the “why” to the “how”. Sessions were almost without exception collaborations between business and NGOs, and many drilled down into how certain sectors or professions can best embed respect for human rights into their day to day: individual sessions were targeted at insurance companies, SMEs, data providers, government procurers, accountants, institutional investors, banks and perishable supply chains.
The key theme of the forum was “Leadership and Leverage”. In this context, “leverage” is the ability of a company to the effect change in the wrongful practice of an entity causing harm (e.g. a company using child labour in the supply chain, or a government wrongfully evicting communities for the company’s operations). Proctor & Gamble explained to attendees how they discovered child labour in their supply chain as children were selling material from landfills to a supplier creating P&G packaging. After explaining its policy of zero tolerance of child labour, P&G temporarily suspended the contract with the supplier but agreed to reinstate it as soon as the supplier addressed the issue. Coca Cola, PepsiCo and Oxfam jointly discussed a current land conflict in Brazil and allegations that a sugar production facility in the multinationals’ supply chains is causing environmental pollution and economic hardship through forced eviction of local communities. . The beverage companies emphasized the need for collaborative action with other peer companies sourcing sugar from this supplier in order to increase their “leverage” over the supplier and encourage it to address the situation. They reported that their efforts are ongoing.
One of the other focus points of the Forum was the relationship between “the supply of money and financial markets” and business and human rights. For civil society, this includes how to encourage, support and/or pressure those companies investing in projects or companies with adverse human rights impacts to use their leverage to improve the situation. For investors, it is about understanding the widening scope of their responsibility and learning from peers. ING, J.P. Morgan, Citi, UBS and ABN Amro shared best practices and challenges with attendees and shared the stage with civil society organisations such as Banktrack, an NGO network scrutinizing bank sustainability performance.
Another key topic was the November 2016 Dutch Banking Agreement on international responsible business conduct concerning human rights signed by the Dutch government, 13 Dutch banks and various NGOs. The Agreement is also open for signature to banks headquartered outside the Netherlands. Key elements of the Agreement include the following:
- Banks will implement human rights due diligence in their operations in conformity with the OECD Guidelines and the UN Guiding Principles within two years
- Banks will go beyond the UN Guiding Principles and OECD Guidelines and ensure that indigenous communities give Free, Prior and Informed Consent to projects
- The Agreement obliges more advanced banks to assist newcomers and is strong on increased transparency
For further information on specific topics discussed at the Forum, do not hesitate to contact our team. Documents and presentations from the Forum can be found at the Business and Human Rights Resources Centre Website.
GRI Sustainability Reporting Standard, “GRI Standards” have been released
In October 2016, the GRI Sustainability Reporting Standards” were published to replace the Global Reporting Initiative (GRI) G4 Guidelines. Since identification and disclosure of material issues, characteristics of G4, have been inherited by the new standard, businesses will not need to substantially alter their sustainability reporting. However, considering the context behind the drafting of the standard: the intention to have the GRI Standard accepted by the market as a soft law, and expectation to increase transparency in disclosing information about economic, environmental and social impacts, it is reasonable to assume that GRI will wield greater influence on sustainability reporting. Furthermore, as GRI and the Sustainable Development Goals (SDGs) are correlated, more companies are expected to incorporate the SDGs in their materiality identification and disclosure.
An overview of the GRI standards and background of its formulation
This past October, the Global Sustainability Standards Boards (hereinafter “GGSB ”*1) released the GRI Sustainability Reporting Standards, or GRI Standards for short, to replace the GRI G4 Guidelines. The Standards aim at sustainable development, encouraging organizations to reflect both positive and negative economic, environmental and social impacts in their sustainability reports. The standards are designed to enhance comparability and quality of information on economic, environmental and social impacts as well as to strengthen transparency and accountability.
After publishing the 1st edition of guidelines for reporting of companies’ economic, environmental and social performance in 2000, GRI has continued to refine the guidelines and released the GRI G4 Guidelines in 2013. According to Sustainability Forum Japan, a non-profit organization, by raising the status from guidelines which serve as a handbook of sustainability reporting to a standard, GRI intends it to be accepted in the global market as a soft law. Behind the shift to a standard are the growing interests of investors in “ESG information” as a new corporate value. A new EU directive for mandatory disclosure of non-financial information is coming into force in 2017. This is also attributable to the shift.
The aforementioned Sustainability Forum Japan is releasing a Japanese translation of the GRI Standards the next spring.
Structure of the GRI Standard
The G4 Guidelines come in two volumes, “Reporting Principles and Standard Disclosures” and “Implementation Manual.” The former describes reporting principles and standard contents for disclosure as well as criteria for companies to prepare a report in accordance with the Guidelines while the latter provides guidance on reporting and interpretation of the Guidelines.
The GRI Standards are divided into three “Universal Standards (GRI101 – 103)” and 35 sets of “Topic-specific Standards (GRI200, 300 and 400).”
The Universal Standards consist of “GRI 101 Foundation,” “GRI 102 General Disclosures” and “GRI 103 Management Approach.” The “GRI 101 Foundation” presents reporting principles, requirements and the basic process of sustainability reporting based on the GRI Standards. The “GRI 102 General Disclosures” covers required disclosures including strategies, governance and stakeholder engagement while the “GRI 103 Management Approach” lists management disclosures related to materiality. The Universal Standards apply to all organizations and bodies issuing sustainability reports regardless of their size, industries or region.
In addition, “Topic-specific Standards have 35 specific disclosures under three categories, “GRI 200 Economics,” “GRI 300 Environmental” and “GRI 400 Social.” The Topic-specific Standards are optional and reporting bodies can select disclosures according to each materiality.
What makes the G4 Guidelines distinctive is the identification of material aspects (materiality) and provision of guidance on impact assessment and disclosure of relevant KPIs. These features are inherited from the GRI Standards and guidance on identification and reporting of materiality is provided as in their predecessor.
Impact on businesses
Following the release of the GRI Standards, companies and other report-issuing bodies are encouraged to shift from the G4 Guidelines to the new Standards by July 2018. Since the Standards were developed based on the G4 Guidelines and their distinctive feature of materiality identification and other elements are incorporated into the GRI Standards, the contents of sustainability reporting should not be subject to significant changes. However, considering the underlying intention of having the Standards accepted by the market as a soft law and the expectation of increasing transparency in disclosure of economic, environmental and social impacts, we should be prepared for GRI’s greater influence over sustainability reporting.
In addition, GRI shows relevance and consistency with the SDGs through “GRI’s Sustainable Development Strategy 2016 - 2020,” “SDGs Compass” and “GRI Corporate Leadership Group on Reporting 2030.” In Japan, under the leadership of the Prime Minister’s Office, the Executive Board for Promotion of the SDGs is working to establish SDGs Implementation Guiding Principles as the Ministry of Environment holds SDGs Stakeholders’ meeting. Considering these developments in the Japanese government and the correlation between the SDGs and GRI, it is quite likely that the number of companies that incorporate the SDGs in their identification and disclosure of materiality will be on the rise.
What are the impacts of the ratification of the Paris Agreement, COP22 and the result of the U.S. presidential election on Japanese businesses?
The 22nd Session of the Conference of the Parties to the United Nations Framework Convention on Climate Change, better known as COP22, had been held from November 7th to 18th in Marrakesh, Morocco. In the wake of the historic ratification of the Paris Agreement, Mr. Donald Trump, a climate change skeptic, was elected President of the United States. Amid uncertainty brought about by these developments, what Japanese businesses should expect to face?
The main theme of the discussion at COP22 was how to implement the Paris Agreement. The outcome was an agreement to develop guidelines for implementation of the treaty by 2018 as well as to discuss specific measures for the next couple of years.
Impact of the U.S. presidential election
The result of the U.S. presidential election was a hot topic, not only at the main forum of COP22 but also at concurrent sessions. As COP22 is one of the world’s biggest climate change-related forum, most of the participants perceived the election result as could be a potential risk for the future but not one that would hamper the shift towards a low-carbon society, and many welcomed that this regime change did not take place four years earlier. Although some of the US federal government officials who were scheduled to attend sub-forums cancelled their attendance, state government officials in charge of the environment attended and remarked that state-level policies would not be affected by the administration change. For instance, the state of California introduced policies on climate change in 2006 during the Bush administration. These policies remained unchanged when President Barak Obama took office and are expected to stay in place during the next administration.
Growing attention to renewable energy
Developing countries are actively enticing foreign investments in renewables. A number of countries are committed to the promotion of renewable energy underscored the opportunities they can offer investors in regions with no electricity as introduction of renewable energy can boost electrification without using fossil fuel to generate power.
Impact on Japanese companies
Japan submitted its instrument of acceptance of the Paris Agreement on November 8th, one day after the beginning of the COP22 Conference. Accordingly, Japan is now responsible for taking actions to address climate change in accordance with the framework agreed by the member nations in Paris. Against this backdrop, the Japanese Ministry of Environment recently revealed its intention to launch a full-scale discussion on the implementation of carbon pricing (a system to impose carbon tax and enable carbon emissions trading).
Japanese businesses must stay up-to-date with these developments at home and abroad while keeping an eye on the energy situations in the developing nations which are rapidly shifting towards a zero-carbon future. To adapt to this trend, Japanese companies also need to revisit their corporate strategies on climate change and take a long-term perspective to better capture opportunities while mitigating risks.
Food Waste in the Supply Chain
Food waste has became a significant issue that has impacts on our natural environment and society. To tackle this problem, companies and their supply chain partners should carefully look at their own supply chains. In each part of the supply chain, there are various approaches a company can take to help reduce food loss. Companies can benefit by implementing reduction efforts.
Food waste is a global issue that impacts our environment, society and economy enormously – and is increasingly gaining attention both in the food industry and media. According to the Food and Agriculture Organizaiton (FAO) of the United Nations, the global volume of food wastage is estimated at 1.6 billion tons annually, with the portion considered to be still edible at about 1.3 billion tons.*1
In developing countries, the FAO estimates that 30% to 40% of all food produced is lost before it even reaches market. These losses are mainly wasted due to transportation issues and poor infrastructure.
For example, the FAO showed an 18% loss in traditional fresh milk supply chains to urban centers in developing countries due to spillage from inefficient transportation and spoilage from poor storage conditions. Some of the main causes and influencing factors for these milk losses along the distribution chain are:
- Poor han/dling, which includes low standards of hygiene, use of inappropriate containers, and lack of training
- Infrastructure constraints, which includes poor road conditions, lack of cooling facilities, and irregular electricity supply
- Marketing constraints, which include the farmers’ lack of access to markets they can sell product at.
photo: FAO/Roberto Faidutti
In contrast, in developed countries, there are generally low levels of unintended losses, but high levels of “food waste”, which involves food being thrown away by consumers who may have purchased too much, or by retailers who reject food because of aesthetic standards or other specifications. In 2013, the Guardian reported that in the United Kingdom, 15 million tons of food is wasted each year, and consumers throw away 4.2 million tons of edible food each year.*2 The foods most commonly found in British waste bins are among the most likely subject to consumer scrutiny, such as bread, vegetables, fruit and milk.
When we consider the incredible amount of energy, natural resources, labor and other factors that are required to produce, process, transport, and sell food, we realize that reducing food waste is an opportunity for businesses across the entire value chain. These opportunities lie not just from the economic aspect, but also from an environmental and social point of view.
Impacts of Food Waste
Food waste has significant impacts that can directly impact our natural environment and society in a number of ways.
From an environmental point of view, the Wageningen University and Research center, based in the Netherlands, showed that most edible food that ends up wasted is simply burned. In some regions of the world, these burnings and associated emissions can contribute to climate change. Even if not burned, when food waste is sent to landfill to decompose, it emits methane gas, a potent greenhouse gas which traps heat in the atmosphere at a rate 25 times higher than CO2.
From a natural resource point of view, food waste in landfills can pollute waterways and groundwater via leachate – a liquid produced from decomposition that can contain chemicals, heavy metals, and pathogens.
Additionally, food production involves a considerable use of resources, such as water, land, energy, human and financial capital. According to the Commonwealth Scientific and Industrial Research Organization (CSIRO), water used for irrigation to produce the amount of food people waste annually in Australia would be enough to meet the water needs of 9 billion people.
What Can be Done about Food Waste
To tackle the complex issues around food waste, supply chain partners like farmers, traders, manufacturers, wholesalers, and retailers should carefully look at their own supply chains and operations first – from primary production level all the through to consumer purchase and beyond.
In each part of the supply chain, there are various approaches a company can take to help reduce food loss. Two key approaches are outlined below:
As a first step toward tackling food waste issues, training of supply chain partners such as farmers, where food loss has a high instance of occurring, can contribute to significantly to lower losses. Education on best practices, industry standards or other techniques can help farmers reduce their losses, while potentially increasing their incomes through increased sales or reduced operating or disposal costs.
Training other supply chain partners, such as manufacturers, distributors, or retailers on their specific food waste items, areas, or techniques can provide similar benefits.
In recent years, there have been advances in more eco-friendly mobile refrigeration technology, known as “clean cold” technology. A cold chain is supply chain where temperatures must be controlled during storage, transportation, and other distribution activities. This type of supply chain is widely used in the food, pharmaceutical, and chemical industries. With “clean cold” technology, harmful refrigerants, energy consumption, and emissions are minimized, thereby reducing negative environmental impacts. As companies are upgrading their cold chains using “clean cold” technology, they realize the added benefit of improved temperature monitoring and control, which helps keep products fresher for longer, which in turn, reduces waste during the distribution and storage phases.
Policy & Legislation
Regulations regarding food waste reduction are vital in tackling food waste and food insecurity, as governments play an important role in shaping food waste policies and enforcing regulations that can drive industries towards more sustainable practices.
For example, France has become the first country in the world to ban supermarkets from throwing away or destroying unsold food, asking them instead to donate leftover food to charities and food banks.*3 Companies which do not comply with this regulation will be liable for penalties, including fines of up to USD 79, 000 (JPY 9,000,000), or two years imprisonment.
How Companies can benefit from Food Waste Reduction Efforts
A study by the FAO estimates the direct economic consequences of food wastage (excluding fish and seafood) can be upwards of USD 750 billion (JPY80 trillion), annually*4. By implementing source reduction, recycling, reuse, donation or other food waste prevention strategies, potential cost savings can present themselves to proactive companies.
Companies can start capitalizing on these potential savings by taking a look at their entire food value chain and identifying where and with which food items waste is most likely to occur. Then, creating a procurement strategy to address these “hot spots,” while determining best options for excess food procured or sold, and implementing these strategies and options, can steer a company towards smarter, leaner sourcing practices, improved operational efficiencies, reduced labor and waste hauling costs, and reduced pressure on our natural resources.
Making LGBT Inclusion Real
Until recently, the topic of LGBT has not been part of workplace diversity efforts in Japan. It has been a hidden, invisible topic. If mentioned, it is in the context of a joke or a comment about someone not yet married. This atmosphere causes workplace anxiety or depression for those hiding their sexuality, resulting in inefficiencies and turnover. Studies have shown that organizations with a supportive work environment for LGBT employees, have greater employee motivation and satisfaction, resulting in business benefits such increased retention and productivity.
Diversity & Inclusion broadly is about people feeling like they belong; like they are part of the team. Belonging to a team though, is not about conforming to a norm, but feeling appreciated and valued for the uniqueness each person brings to the team. While workplace diversity is often synonymous with gender diversity, diversity actually includes everyone. Every individual is unique due to natural human variation. There are certain types of diversity however, which warrant specific focus due to common societal biases. This includes sexual minorities – individuals who are lesbian, gay, bi-sexual or transgender (LGBT).
Until recently, the topic of LGBT has not been part of the workplace diversity discussion in Japan. It has been a hidden, invisible topic. If mentioned, it is usually in the context of a joke or a comment about someone not yet married. This atmosphere causes workplace anxiety or depression for those hiding their sexuality, resulting in inefficiencies and turnover. The individual works under an ongoing concern that if they say or do something that hints they are LGBT, their secret will be revealed and their work relationships and career will be negatively impacted.
After the 2015 Shibuya ward legislation was passed recognizing same-sex partnerships for specific purposes, more companies are now investigating how they can address LGBT inclusion at work.
According to a 2015 Dentsu Diversity Labo survey, 7.6% of the respondents self-identified as LGBT. With a total population of 126.3 million people, 9.6 million people are estimated to be LGBT, or one out of every 13 people in Japan.
Studies have shown that organizations with a supportive work environment for LGBT employees, have greater employee motivation and satisfaction, resulting in business benefits such increased retention and productivity.*1 In Japan with the shrinking workforce and low productivity, diversity & inclusion is an important retention and productivity strategy. The question is how to make LGBT workplace inclusion real?
To better understand how to create LGBT inclusion globally, EY convened a group of global corporate leaders. The resulting report, video and supporting website entitled Making LGBT Inclusion Real (currently only available in English), gives an overview of the global landscape and shares best practices. The report explains nine key actions to create an LGBT inclusive work environment globally:
- Conduct an opportunity and risk assessment and identify priorities for action
- Set policy globally, calibrate implementation locally
- Keep making the business case for diversity, promoting 360 education and storytelling
- Engage LGBT advocates and allies at all levels of the organization
- Build out strategies supporting successful career growth
- Create opportunities for reverse mentoring and education of management
- Utilize social media and other technology, locally and globally
- Develop LGBT networks and unify globally
- Measure, solicit input and celebrate success
With the Olympic Games coming to Japan, the global spotlight will be on Japan and the expectation of an equitable society will help compel businesses to become more inclusive for visitors, customers and employees along all aspects of diversity. There will likely be heightened focus on diversity of gender, abilities, culture, religion and sexual orientation.
Companies that start now have the opportunity to accelerate workplace inclusion and become more attractive to society, customers, recruits and existing employees. There is much work to do under the nine key actions so that 9.6 million LGBT people in Japan can go to work every day without fear that their secret will be discovered and instead feel valued, engaged and respected at work.
For more information or questions about how to achieve LGBT inclusion at work, please contact EY’s Diversity & Inclusion team at firstname.lastname@example.org.
Connect with us
Stay connected with us through social media, email alerts or webcasts. Or download our EY Insights app for mobile devices.