Introduction

The role of business in society is being fundamentally transformed. As we begin to recognize the inherent failures of neoliberal capitalism, an economic philosophy predicated solely on increasing returns to shareholders, we are slowly acknowledging the fact that markets are embedded within social and natural systems on which they depend, and that there are limits to what markets can achieve. In an age of cascading social and environmental crises, whether it is climate catastrophe, ecosystem collapse, or the erosion of social democracy resulting in demagogic mass movements, we now understand that corporations both affect and are affected by external conditions (previously dismissed as ‘externalities’) which they can no longer afford to ignore.

Every corporation must play a constructive role in the transition to a more sustainable and just future. As evidenced by the rapid rise of ESG investing, there is an overwhelming consensus that a corporation’s negative impacts on society and the environment are material issues which can affect its valuation. On the other hand, the risk of greenwashing has never been higher, as firms jump on the ESG bandwagon even when their funds are not necessarily deserving of the label ‘sustainable’. 

Our company transition toolkit aims to compile the most authoritative standards and frameworks developed by world-leading NGOs on four fundamental dimensions of corporate accountability: ecological wellbeing, human wellbeing, business ethics, and business model and governance. At its core, this toolkit aims to help employees and sustainability teams, activists and advocates, as well as sustainability consultants and ESG analysts, to differentiate between greenwashing and genuinely impactful behaviour. While this toolkit  certainly does not contain all the answers, it is meant to synthesize the most useful and thorough resources available from key issue experts, while providing a summary of their most important points and recommendations. 

At the same time that corporate behaviour is becoming increasingly scrutinized by the public and the media, employee activism has reached an all-time high. Recent analysis finds that there was a three-fold rise in employee activism events between 2019 and 2020. First and foremost, this toolkit is meant as a guide for employees to evaluate the performance of their own companies, identify areas for improvement, and become internal advocates for change. Employee activists have a unique role to play in convincing company directors and managers that sustainable and just practices are both ethical expectations and smart business strategies.

To learn more about the rise of employee activism and strategies for you to create internal change within your organization, see our PDF guide. 

Secondly, this toolkit is meant to help external advisors and analysts, such as sustainability consultants or ESG teams, become familiar with leading international frameworks on the whole suite of environmental, social, and governance issues. Our toolkit both compiles the most authoritative standards, and, where relevant, presents our critique of prevailing interpretations while advancing proposed solutions. Most importantly, while many ESG frameworks address metrics such as carbon emissions or diversity on boards, only rarely do they engage with accountability issues such as regulatory capture and lobbying, fair taxation, excessive compensation, aggressive merger activity, abusive litigation, corruption and malfeasance, and more. We aim to change this. 

Finally, it must be stressed that these accountability and transparency tools are no substitute for robust regulation and public sector actions. As an organization, we will be contributing actively to the movement for a fairer and more democratic economy, with an expanded role for the state sector and more stringent regulations relating to the impacts of corporations on the environment and society. Visit our Policy Advocacy tab to learn more about our public policy work.

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Ecological wellbeing

Introduction

The world’s biosphere is in a state of collapse. Of the nine major planetary boundaries which act as thresholds regulating the health of life on Earth, humanity has crossed at least four of them (with some remaining unquantified). The problem of ecological overshoot continues to grow, while the annual overshoot day–the date by which humanity consumes the Earth’s resources faster than they can be regenerated–moves earlier and earlier every year. The famous Limits to Growth report of 1972, which helped launch the international sustainability movement, was roundly criticized for being overly alarmist in its prognosis of rapid environmental decline–and yet, in an update report published in 2021 by Club of Rome expert Gaya Herrington, the predictions of the 1972 report align remarkably well with what has actually occurred. The social consequences of environmental collapse cannot be understated; the 2021 Ecological Threat Report finds that the number of undernourished people will rise 45% by 2050, while ecological degradation will fuel conflict and unmanageable levels of migration. These consequences will disproportionately affect vulnerable populations with little role in creating this crisis, leading many to claim that climate chaos is simply a continuation of colonialism. Considering the risks that they pose to organized human civilization, acting to avert environmental threats should be one of the chief strategic priorities facing any corporation.

Climate Change

The impacts of climate catastrophe are already being felt, and they are escalating. While the Paris Agreement calls on signatories to limit global temperature rise to 1.5 degrees Celsius, the IPCC indicates that this target is very likely to be significantly exceeded. The carbon budget required to limit the global temperature rise to 1.5°C will be consumed in less than a decade. Energy companies and governments currently plan to burn 120% more carbon that would be permitted in the 1.5 degree carbon budget, a discrepancy known as the global production gap. The Rainforest Action Network has determined that the world’s 60 largest commercial and investment banks have provided over $3.8 trillion in funding to the fossil fuel sector from 2016 to 2020. Despite a flurry of corporate announcements on emissions reduction targets, very few major firms have made net-zero pledges that are actually credible, according to the Corporate Climate Responsibility Monitor. Current research shows that most fossil fuel companies prefer to rely on speculative carbon removal technologies, and have yet to adopt science-based targets focused on reducing the production and combustion of fossil fuel reserves. Without significant improvements, there is a distinct possibility that additional warming could trigger feedback loops that lead to warming far worse than 1.5 degrees, which will make many regions of the world uninhabitable.

To learn more about science-based net-zero targets, low-carbon transition plans, and what firms should be doing to implement them, see our PDF guide. 

Biodiversity, Ecosystem Services, and Land Use

Around the world, ecosystems are in peril due to a combination of deforestation, habitat destruction, desertification and land degradation, pollution, ocean acidification, and many other threats. The current rate of species extinction is at least 1,000 times the normal background rate, leading some scientists to claim that we have entered the sixth mass extinction event in Earth’s history. Natural ecosystems have declined by 47% on average, while the global biomass of wild mammals has fallen by 82% relative to prehistory. According to the Swiss Re Institute, over 50% of global GDP depends on high-functioning biodiversity and ecosystem services. Land degradation is particularly catastrophic; about 85% of global arable land is threatened by erosion, salinisation, soil compaction or pollution, resulting in costs that could rise to US$10.6 trillion per year. Despite these threats, one study found that in 2019 alone banks around the world lent $2.6 trillion that was directly linked to ecosystem and wildlife destruction. The world has failed to achieve a single one of the decade-old Aichi Biodiversity Targets, and new targets are currently being renegotiated under the Convention for Biological Diversity.

To learn more about Global Goal for Nature, science-based biodiversity targets, and how corporations can become better stewards of biodiversity and natural capital, see our PDF guide.

Waste, Materials, and Circular Economy

The underlying cause of most ecosystem destruction is a culture of disposable consumerism that is putting pressure on the Earth’s capacity to regenerate its natural systems. Global material flows have reached a historic peak, and show no signs of slowing. Humanity’s total demand for resources is expected to reach 130 billion tons by 2050, up from 50 billion in 2014, meaning that we are overshooting the Earth’s capacity by 400%. Research from the 2019 Global Resource Outlook finds that resource extraction causes 90% of biodiversity loss and water stress on our planet. In recent years many groups have begun advocating for circular economy practices that move away from linear production models by recovering waste from value chains, repairing and reusing old products, ending planned obsolescence, and restoring nature by reducing consumption. While interest in circular economy business models is accelerating, the global economy is only 8.6% circular and is becoming less so every year. By helping to reduce material consumption, it is estimated that moving towards a circular economy has the power to cut global GHG emissions by 39% and reduce virgin resource use by 28%.

To learn more about circular economy business models, assessment tools, and best practices, see our PDF guide.

Water, Effluents, and Pollution

Water scarcity is sharply on the rise worldwide, a situation which will only be exacerbated by climate change. By 2030, it is estimated that 50% of people will be living with water stress, and global demand for water will outstrip supply by 40%. At the same time, air and water pollution continue to greatly imperil the health of the biosphere and of human beings. Air pollution kills up to seven million people every year, and WHO data demonstrates that 99% of people breathe air every day that exceeds the recommended concentration of pollutants. 80% of the world’s wastewater is left untreated and dumped back into the environment, and contaminated water kills more people each year than war and all other forms of violence combined.

To learn more about water risk, water footprint analyses, and pollution reduction, see our PDF guide.

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Human wellbeing

Introduction

Despite frequent discussion of the need for ‘inclusive’ or ‘equitable’ development, the world is nowhere close to meeting its deadline for achieving the UN Sustainable Development Goals. The COVID-19 pandemic has reversed decades of progress on poverty alleviation, healthcare and education, leading to a scenario in which global extreme poverty rose for the first time in 20 years. Although there continues to be much talk about the ‘S’ in ESG, corporate action on fundamental issues of human and social wellbeing, from forced labour and Indigenous sovereignty to systemic racism and paying a living wage, remains woefully insufficient. Recent analysis by the World Benchmarking Alliance of over 1,000 major firms has found that only 1% of companies demonstrate even the basic fundamentals of social responsibility, while a full 78% of companies scored zero on all three human rights due diligence indicators. For a full list of social and human rights issues that corporations should be reporting on, see this guide by Coro Strandberg, or pages 21-23 of this guide by the Embedding Project.

Consumer Welfare

Whether it is through the sale of unsafe products, predatory practices related to customer acquisition,  or the exploitation of customer information, there are many ways that businesses can infringe on consumer welfare. Consumer protection regimes have been installed in many jurisdictions, but they are not always effective. A particularly egregious example of the violation of consumer welfare occurred in the US mortgage sector before the 2008 financial crisis, in which banks and other institutions coerced consumers into signing up for adjustable rate mortgages without their knowledge. Similarly, the undisclosed use of customer’s data, particularly its sale to unidentified third parties, is an unethical violation of consumer welfare and individual privacy.

To learn more about what firms should be doing to protect consumer welfare and promote transparency in all transactions, see our PDF guide.

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Business ethics

Introduction

Far too frequently, environmental, social, and governance problems are framed as risk management issues rather than what they really are: ethical dilemmas. This has the neutralizing effect of framing inherently social and political questions as technocratic issues to be solved by better ‘management’ or more efficient markets. As scholars like Michael Sandel have shown, the desire to solve ethical dilemmas by simply trying to increase the efficiency of markets (i.e. by improving information-sharing, or by assigning a monetary price to ‘externalities’) can have unintended and counterproductive side effects. In other words, we shouldn’t always need a business case to do the right thing. A perverse consequence of the tendency to assign a price to ethical action is that corporations decide to pursue ethical behaviour only when it is profitable to do so. While many corporations are happy to talk about carbon emissions or diversity on boards, other key questions related to the role of corporations in our society, such as fair taxation, regulatory capture, excessive compensation, or the distributional consequences of an overly financialized economy, are rarely if ever discussed. The World Benchmarking Alliance has found that only 8% of companies disclose how much they spend on lobbying and influencing legislation, while only 9% of companies disclose the amount of tax paid for each jurisdiction where the company is resident for tax purposes. Until we come to view corporate action on sustainability and social justice as fundamentally a problem of ethical leadership, rather than as risk management issues to be solved by better disclosure, we will not be able to tackle humanity’s shared challenges.

Corporate Lobbying

Corporate lobbying, when left unchecked, can impede the functioning of democratic systems and lead to regulatory capture. In the United States, campaign finance laws have been rewritten to allow for the unlimited corporate funding of elections, with the result that enormous pools of ‘dark money’ have been used to influence election outcomes and advance an anti-labour, anti-environment agenda. Influential donors, such as Charles and David Koch of Koch Industries, have spent decades developing sophisticated networks of think tanks, lobbying coalitions, and fake grassroots advocacy groups in order to eliminate consumer or environmental protection laws and undermine democratic accountability. While the situation in Canada is not as dire, DemocracyWatch has summarized over 100 loopholes in Canadian law that allow for secret donations and conflicts of interests. Particularly troubling are the lobbying activities of the Canadian fossil fuel sector, an industry that is highly organized, well-connected, and often opposed to robust climate action.

To learn more about how firms should be disclosing their political activities, see our PDF guide.

Corporate Taxes

Researchers at the International Monetary Fund estimate that overall losses to governments as a result of corporate tax abuse amount to well beyond $1 trillion per year. Although the sum is difficult to calculate, the estimated total of global wealth that is held privately in offshore tax havens numbers a staggering $24-36 trillion as of 2015, a quantity which grows at a rate of 14% per year. As the leak of the Pandora Papers demonstrated, a global tax avoidance industry of banks, law and accounting firms, and specialist providers have designed a complex labyrinth of secret offshore structures and low-tax jurisdictions that compete with one another to facilitate the private hoarding of wealth by corporations and high net-worth individuals. Glaring loopholes in the law have made tax avoidance a significant problem for Canada; analysis by the Canada Revenue Agency of 2014 corporate taxes suggested that Canadian corporations avoid paying between C$9.4 and C$11.4 billion in tax each year, which is almost 30% of the total corporate tax bill.

To learn more about how firms should be disclosing their tax payments, and reforming their accounting practices to ensure fair taxation, see our PDF guide.

Excessive Compensation

Excessive executive compensation has been one of the central factors leading to increased income and wealth inequality in North America. Between 1965 and 2000, CEO compensation in the United States grew by about 2500%, while average worker compensation increased by only 30%. According to the High Pay Centre, the ratio of CEO pay to the wages of the average worker rose from 42 to 1 in 1980 to an astonishing 347 to 1 by the year 2017. In Canada, executive compensation is at one of its highest levels in history. However, most research shows that the relationship between bonus increases and profit growth is non-existent, and that there is no link between long-term incentive plans and shareholder returns. At the same time, one study found that companies with higher CEO-to-average-worker pay gaps perform worse than those with greater pay equity.

To find out what firms should be doing to advance pay equity and limit excessive executive compensation, see our PDF guide.

Corruption

Corruption, fraud, and other forms of malfeasance are a major issue for all businesses, particularly among firms operating in jurisdictions with weak governance regimes where bribery and other forms of illicit payments are often considered a discreet cost of doing business. There are many types of corruption, which can include bribery, extortion, cronyism, kickbacks, fraud, nepotism, insider trading, money laundering, patronage, graft, and embezzlement. There is evidence that corruption costs developing governments $1.26 trillion every year. Despite these risks, data by Transparency International has demonstrated that the state of corporate reporting on corruption risk remains extremely weak, while half of the world’s exports originate from countries that fail to punish foreign bribery. Corruption is regulated by the UN Convention Against Corruption (UNCAC), which is overseen by the UN Office on Drugs and Crime.

To learn more about what firms should be doing to eliminate corruption risk and adopt anti-corruption policies, see our PDF guide.

Coercive Litigation

There are many ways that corporations weaponize the law, and particularly processes of private adjudication, to intimidate and take advantage of weak governments and silence opposition. One way that multinational corporations use litigation to take advantage of weak governments, particularly in the Global South, is through the exploitation of stabilization clauses in bilateral investment treaties which allow them to sue host governments for lost profits associated with the passage of social or environmental regulations. Such lawsuits often take place through the use of Investor-State Dispute Settlement (ISDS) mechanisms, whereby foreign investors are entitled to sue a national government for both real and perceived financial damages. In a similar fashion, predatory investors known as ‘vulture funds’ have made a practice of purchasing distressed sovereign debt from low-income nations on secondary markets and then using litigation to intimidate cash-strapped governments into paying the full face value. Companies also often strategically employ litigation to obstruct accountability and intimidate or silence critics, particularly community activists such as environmental or human rights defenders. These forms of judicial harassment are called ‘strategic lawsuits against public participation’ (SLAPPs), and they have been used to great effect.

To learn more about how to recognize and prevent coercive litigation practices, see our PDF guide.

Economic Inequality

Throughout the industrialized world, economic and wealth inequality has been rising for several decades. Although there are many drivers of economic inequality (including excessive compensation and offshore tax havens, as mentioned above), another key factor has been financialization, defined as the process by which the power and size of the financial services sector increases relative to the real economy. New research by the Bank of International Settlements has proven that, beyond a certain point, financial sector growth tends to crowd out real economic growth and thus contributes to wage stagnation and inequality. The increased power of finance capital, in its prioritization of short-term stock performance, has helped aid the rise of predatory practices like corporate raiding, asset-stripping, widespread layoffs, and an explosion of merger activity that greatly increased the concentration of wealth and the power of monopolies.

To learn more about financialization, and how to recognize the warning signs of aggressive merger activity or predatory practices, see our PDF guide.

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Business Model and Governance

Introduction

Far too few businesses consider sustainability a strategic issue, or something worthy of the transformation of their entire business models. Most organizations’ sustainability plans and strategies are often vague and ambiguous, contain few concrete or near-term targets and goals that are quantifiable and realistic, and lack the appropriate capital allocation and organizational resources to be truly transformative. Firms frequently highlight positive success stories in their sustainability reports, while failing to disclose major controversies or ESG failures, and in those contexts sustainability reports amount to little more than elaborate forms of greenwashing. Academic research shows that companies are motivated to produce sustainability reports less out of a concern for reducing impact than a “desire to minimise short term profit variations, gain stakeholder approval and enhance corporate reputation (particularly after reputation-damaging incidents).” As recent Bloomberg analysis has demonstrated, ESG ratings have less to do with reducing negative impacts than with measuring whether environmental and social risks affect a company’s profitability. As long as firms continue to adopt an enterprise (i.e. simple) materiality approach to corporate reporting, wherein all environmental and social risks have to be filtered through the language of financial accounting, the problem of shareholder primacy will not be overcome. At the same time, institutional short-termism remains a major problem; according to a study by Morgan Stanley, 80% of managers said that they would consciously prioritize short-term value metrics even at the expense of long-term shareholder value. It is only by slowing down corporate culture and shifting to long-termism that corporations today will be able to take action on climate change and other complex, system-wide challenges.

Procurement

The next frontier of corporate procurement is to engage suppliers, vendors and contractors in improving their social and environmental sustainability performance. Major multinational firms with large market power have an enormous opportunity to influence change in the operations of their supply chain partners. Unfortunately, less than half of supply chain professionals say that their organizations have supply chain sustainability goals. To really become sustainable, organizations must adopt sustainable or social procurement policies, implement incentives for better supplier performance, improve supply chain visualization to map key risks, and other approaches.

To learn more about sustainable procurement policies and frameworks, see our PDF guide.

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