June marks the 20th anniversary of the Rio Earth Summit, the event that led to the Kyoto Protocol, the creation of carbon markets and the kickstarting of a renewable energy revolution. It is being marked by another summit, known as Rio+20. But while the 1992 meeting was policy-focused, with more than 100 heads of state turning up to hammer out a deal, business is set to play a much bigger role this year.
One of the conference’s key themes is how to create “a green economy in the context of sustainable development and poverty eradication”, with business increasingly seen as one of the main drivers of progress. However, rather than concentrating on high profile issues such as renewable energy and carbon markets, much of the focus is on more prosaic measures such as getting companies to report on their environmental and social impacts.
“We have achieved a lot since 1992, but there is still a long way to go,” says Ernst Ligteringen, chief executive of the Global Reporting Initiative. The idea of companies reporting on their environmental and social impacts has gone from being pioneering to being an expectation in the market, he adds. “Rio+20 has the opportunity to embed this as policy.”
Disclosure has moved significantly in the right direction, adds Curtis Ravenel, sustainability director at Bloomberg. “In 2005, about 700-800 companies disclosed environmental, social and governance data. Now it is about 6,000. And if you are measuring a problem, you are probably managing it to some degree. Nonetheless, it is still very early in the game for this sector.”
A pre-Rio+20 business summit held in February by KPMG highlighted the increasingly complex landscape companies now have to navigate.
Until now, we found global trends on energy, water security and food scarcity complex enough. The convergence of other forces such as population growth, deforestation and a surging middle class is impacting business and the world around us,” says Yvo de Boer, KPMG’s special global adviser on climate change and sustainability.
Despite this, companies are leading the way on sustainability, says Mr Ravenel.
“Businesses have taken the lead because they have recognised this is not a pure cost to them – there are significant benefits both real and intangible.”
Companies that wish to thrive in future will have to embrace sustainability, says Mikkel Vestergaard Frandsen, chief executive of Vestergaard Frandsen, a Swiss company that used to make uniforms for hotel and shop workers but has transformed itself into a maker of disease control products ranging from mosquito nets to water filters.
“We have turned corporate social responsibility into our core business of creating life-saving products for the most vulnerable,” he says. “Sustainable development is key to the success of our business.”
The company has even found a way to link its work in public health with efforts to cut emissions by funding a $30m scheme to provide water filters in Kenya using voluntary carbon credits. “The water filters reduce the need to boil water, cutting the need to burn firewood and therefore to thin out forests for fuel,” says Mr Vestergaard Frandsen.
Many people in the development community believe the sustainable development agenda has been hijacked by climate change to the detriment of other issues such as public health and poverty alleviation, but Mr Vestergaard Frandsen says his company’s project, which employs 8,000 people and is bringing safe drinking water to 4.5m people, is an example of initiatives that can address all these issues at the same time.
One of the biggest benefits, he says, is the way the project cuts through the different silos that exist between different disciplines. “There are clear links between public health, environmental security and food security but they are rarely addressed,” he says.
These silos exist in other areas, most notably between companies and investors, with investors widely perceived to be lagging behind the corporate world. The GRI’s Mr Ligteringen puts this down to the continuing focus on short-term returns in financial markets, but he adds: “The information that investors need is not yet readily available and good analysis is relatively limited.”
Bloomberg’s Mr Ravenel concurs. “The data are 100 times better than they were but they need to improve by 100 times as well. Most mainstream analysts need to see a full set of data before they can deal with this – and that means across geographies and across sectors. At the moment, we have about 25 per cent of companies disclosing something but it is pretty inconsistent – we need standard methodologies so investors can make comparisons.
“Too many people say [factoring in ESG issues] is the right thing to do – and it’s good for business, too,” Mr Ravenel says.
“We need to switch that around. There is a perception, particularly in the US, that the return on investment is not there – but it is, and large companies have a lot of cash right now. This is a great time to put that money to good use to make their operations more efficient and robust.”