Benchmarking against climate change
Climate change is a real threat to all life, proven as such beyond any reasonable doubt. IPCCC predicts, in case of further global warming, there will be substantial biodiversity loss, species extinction, large risks to food security, extreme weathers rendering certain areas uninhabitable; which leads to migrations and corollary political and social insecurities.[1] Climate change has thus far been considered a public issue - however, if we were to look at contextualized data, we would realize that private corporate entities are a necessary driver to counter the impending climate harm. For example, predominant source of GHG emissions is attributed to 100 fossil fuel producers: Carbon Majors Report state that the emissions from these producers account for 91% of industrial GHGs and 70% of all anthropogenic emissions, with 51% of all historical can be attributed to 25 thereof.[2]
Evidently, climate change is more of a private than a public problem - proven by its origin. Without delving into the doctrinal and moral obligations of a corporation, there is a crucial need for a mechanism that will induce corporate behavior to act in a more sustainable manner, without harming the global economic life. In that light, perhaps the most effective way is by use of benchmarking; i.e., by measuring performance and processes of companies, and comparing it to the results of the best in the industry. Such approach has been taken by the World Benchmarking Alliance (henceforth WBA); a collaborative community of organization aimed at achieving SDG 17 through benchmarking.[3]
How to approach?
WBA, being aware of the cruciality of sustainable transformations, has identified 7 systems that affect the SDGs the most: social; food and agriculture; decarbonization and energy transformation; circular; digital; urban; and financial. Across the 7 systems (simultaneously overdue for the change themselves and having a significant influence on each other), WBA has identified 2000 companies that have disproportionate influence on meeting the SDG 17.
These companies have the biggest pull in achievement of SDGs due to their dominant position in the industry as well as due to the breadth of their supply chains. They can change the game if they choose to – but how to impel companies to look beyond profit maximization?
Looking at data and social developments, it is becoming ever so evident that both investors and consumers care about the sustainability of the companies they engage with. For example, in a research done by Nielsen, it was shown that 73% and 81% of consumers would change their habits and feel corporations have a role in improving the environment, respectively.[4] At the same time, research funds show that investment funds that have scored the highest on the Morningstar sustainability rating experienced an influx of $24 billion, whilst the lowest only half of the amount.[5] Another example we can take as a proof of this coercing force is the new-found tendency of companies to come out with their sustainability targets and strategies; such as the one done by Exxon earlier this year.[6]
In other words, companies might be impelled to pull towards systems transformation and SDGs, once their contribution to achievement thereof (or perhaps contribution to climate change) is made visible and benchmarked. Namely, the ranking of a certain company would signal the company itself where it is lacking, as well as what consumer and investor behavior is can expect. On the flipside, consumers and investors can use the ranking as a guide of where they want to invest, which company they want to give their money to.
Why benchmarks?
Be that as it may, companies still deal with a variety of stakeholders and diverging interests. In order to clarify what stakeholders expect and want from companies, WBA identifies relevant benchmarks through a consultation process. This consultation process has a twofold effect; on the process of the creation of the benchmark, and on the effect thereof. Firstly, the consultation process facilitates open dialogue between stakeholders and companies. Dialogue creates a fruitful ground for long-term cooperation between civil societies and corporations, which in turn facilitates transparency, trust, and reliability. The result is the possibility of simultaneous adaptation of corporations to the demands of stakeholders, and stakeholders’ understanding of what demands are realistically feasible. Secondly, the dialogue clears up what are the relevant interests and values of civil societies. Essentially, by pinpointing the common interests, the benchmark fills any gaps that the corporation might not be aware of. On the flipside, the relevant benchmarks also showcase what are the limits to the corporate influence. By clarifying what role a company can have in achieving a SDG, and to which extent, it signals to the company where its efforts will be most effective. In other words, it allows the companies to create meaningful impacts without losing valuable time and resources.
Additionally, as benchmarking is essentially about competition, it comes to no surprise that it also impels the corporations to do better. The benchmark showcases to the poorly-performing ones how much is there to catch up, as well as what needs to be done to effectively catch-up. The well-performing companies are not only given credit for their sustainable activities, but also can track their own performances.
What is the result?
Sometimes hard law is not the way to go. In cases such as this one, where swift action is needed from market entities, slow legislation process or strict judicial measures can fail at their aims.
Benchmarks, on the other hand, create no legal obligations stricto sensu; completely voluntary, measurements done with publicly available data, and without any legal constraints. However, the value of benchmarks is their indirect influence. By establishing benchmarks, the conduct of companies has metrics against which it is compared. How well the company ranks, in comparison to other companies regarding a specific conduct, sends a message to the investor and consumers essentially answering the question how aligned is the company with values thereof. The better it scores, the better its market and social reputation, the more advantageous for investment it is. The worse it scores, the worse its market and social reputation, and less likely will it be invested in.
More specifically, as WBA’s benchmarks are created with countering climate change in mind, the ranking showcases how open the company is to countering and solving climate change. The higher the company’s rank, the more assurance to the investors and consumers that its conduct is sustainable and green, the bigger expected investment. The lower the company’s rank, the less assurance to investors and consumers regarding its conduct, the lesser expected investments. With that being said, the beauty of benchmarks is in its flexibility, and of ranking in its changeability. Companies can use the benchmarks as a toll to understand what needs to be done for them to ameliorate their score, and with it profit as well, whilst having continuous yearly feedback on their progress from organizations such as WBA.
Essentially, this model offers 2-in-1 opportunities; by using benchmarks as a guidance companies can counter climate change whilst benefiting their own financial interests.