Category: Sustainability indicators

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Biodiversity- far behind corporate climate change initiatives

It’s International Biodiversity Day today and it might seem like yet another symbolic initiative where you can show pictures of bees in your feed and appear to do good. But Biodiversity deserves better. Most of us tend to forget that on a global scale, at least according to the planetary boundaries and other researchers, biodiversity is a more acute issue than climate change.

On a corporate level, biodiversity is still an underdeveloped area of sustainability. Sectors with a direct and large impact on biodiversity (such as forestry and agriculture) are more advanced in the area than companies with an indirect impact, according to a recent report by IVL on behalf of the Swedish EPA. One of the reasons biodiversity work is underdeveloped is because there is no established standard for calculating impact and setting quantitative goals for biodiversity. On the climate side, Greenhouse Gas Protocol may be imperfect but it has leveled the playing field among companies and makes sure that climate impact is calculated in a standardized fashion.

As the authors of the report note, biodiversity is often governed using certifications. I would say that organic certification is the most common way companies govern biodiversity. I’m currently researching grocery and food companies and in this sector there are often targets for share of organic produce, for example that 10% of sales should be organic. As we know, organic certifications benefit biodiversity since pesticides is a threat to biodiversity. Sadly, the share of organic food sold in Sweden is currently declining.

However, biodiversity is much more than pesticides. It is of course also related to pollution more generally, such as water pollution. Perhaps less well known, and as The UN emphasizes, it is also about genetic diversity. Genetic diversity is one key measure used by the planetary boundaries framework. It means that monocultures and using only certain breeds on a large scale is not very beneficial for biodiversity. It also makes systems less resilient because if one pest that likes this particular species finds it, it can threaten the whole harvest. I have rarely seen this discussed in corporate sustainability reports. And as customers we rarely get information of the kind of breed we consume (probably Ross or Cobb in terms of chicken) so we may not be aware of the very limited biodiversity in what we consume.

To end, I want to highlight some positive examples I have come across. Plockhugget is a Swedish company that promotes more biodiverse forests through its business. If you buy a phone case from Swedish startup Bark, you may get wood from Plockhugget and you also get information on the specific type of wood used for your case and where it grew etc. I just bought a phone case made from wood that grew on Kungliga Djurgården, a large park close to were I live in Stockholm. It doesn’t get more local than that and no monocultures were involved. The tree no doubt had a good life too.

Buying food at the farmers market is another way to support biodiversity. Small scale farming has, according to a recent study by researchers at SLU, better biodiversity effects than large scale farming. If you don’t have time to visit the farmers market, Gröna gårdar sells only grass fed beef (grazing is really good for biodiversity) from small to medium size farms via the internet. There may also be farms that do direct sales to customers in the city, I only yesterday bought eggs from Pekin Bantam hens via Franzéns Charkuterier (on the picture) for example. Franzéns also have Linderöd pigs, another old breed you won’t find in conventional food chains. Supporting such small businesses, who don’t work with the mainstream breeds optimized for large scale production, supports genetic variety.

Beautiful Pekin Bantam eggs you won’t find in the grocery store

Another promising initiative is Crowdfarming. They support direct sales between farmers and customers within Europe. When you buy food via Crowdfarming you can see what variety you buy (the common Hass avocado or the less common Reed variety for example) and whether the farm that cultivated it is small, medium or large and other sustainability initiatives at this farm. Crowdfarming also educates its customers on the types of varieties that exist and when their proper season starts etc.

Obviously, biodiversity is not only an issue for forestry or agriculture. However, I have come across fewer good examples from other industries. If you know of other good examples, please let me know in the comments. I still have much to learn in regards to biodiversity. There is still limited research within business studies on this issue too.

Wish you all a good International Biodiversity Day

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Can sustainability reports regulate companies’ conduct?

Browsing articles in the research journal AAAJ the other day, I noticed that my own article, published over a year ago, was on their list of ‘most read in the past 7 days’. This fact made my week. It is more than great when your research matters to the research community, however, sometimes there are learning point for non-academic society too. Rereading the paper, I do think there are points in the paper that could be interesting for non-researchers as well. Hence this blog post.

In recent years, it has become mandatory for large companies to produce a sustainability report each year. In Sweden, it became mandatory because of an EU directive. The idea behind this kind of regulation is that the company’s sustainability report will inform its stakeholders- such as customers, local community, employees and investors- about what the company does in relation to sustainability issues such as climate change, human rights, anti-corruption etc. The stakeholders can then use this information, if they are unhappy with what the company does, to exert pressure on the company. The stakeholders can thus hold the company accountable for its actions. In this way, corporate conduct is regulated; the company will want to change its corporate conduct because of the stakeholder pressure. It is called ‘civil regulation’.

Interestingly, there are a number of cases in the research literature, specifically studying sustainability reporting, where civil regulation does not work as planned. There are cases of stakeholders, for example NGOs, that receive the sustainability reports and read them but do not feel equipped to exert pressure on the company. The company reports and the stakeholders receive it, but there is no civil regulation taking place. The company can continue with business as usual.

Reviewing these cases of ‘failed’ civil regulation, I try to explain why the reported information may not be enough to produce such civil regulation. My article argues that we, in these cases, tend to overestimate the ‘power’ of information and confuse it with knowledge. I use the example of ESG investor analysts, i.e. analysts that focus on how companies handle sustainability issues such as energy consumption, pollution, human rights etc. These investors do attempt to hold companies accountable for their unacceptable sustainability performance, a practice the industry calls ‘company engagement’. In my study I find that when the analysts do so, not all information is alike and the analysts rely on several other types of information, for example from consultants and media, plus many other types of resources such as theories, calculations etc. to show that they know what the company does and how it should change its practices.

Consequently, I argue that we need to carefully distinguish between information and knowledge. Information, such as sustainability reports, may indeed contribute to knowledge but is rarely enough on its own to hold the company accountable. We cannot assume that if someone has information about someone’s actions s/he will be able to hold this person accountable. What kind of information we hold matters: where it comes from, if it contradicts or confirms other accounts. It matters how it is used, together with other resources or to disprove other statements. Moreover, in some cases other resources other than information, for example theories, helped the analysts to hold the company accountable.

This study does not, however, show that sustainability reports are not useful for regulating companies’ conduct. It just illustrates that information in the form of a sustainability report is not enough on its own. If we construct this kind of reporting-based civil regulation, like the EU-directive, we should not overestimate the power of a single source of information. In this context, empirical studies such as the one in AAAJ can inform us about the role the reported sustainability information plays in practice.

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Steering businesses towards a circular economy

As I have previously blogged about, the students in my master course ‘measuring sustainability’ at NHH have analysed and proposed indicators that H&M and other fashion companies can use to steer their business towards a circular economy. We are very thankful to H&M and sustainability manager Luisa Book for collaborating with us on this case. The topic is very much of the moment as an increasing number of companies, just like H&M, aim to become circular but then also need appropriate tools to help steer their operations in this direction.

Some of the indicators the students proposed, such as amount of recycled material out of total use of materials, are maybe not new but are crucial when a circular business is the target. Moreover, the number of times a material can be recycled needs to be monitored in order to make sure that recycling is not just a prolonging of a linear path (see Circular Flanders great illustration of this to the left). In an ideal world, materials can be recycled indefinitely.

The students also argued that it is key to keep track of collecting initiatives i.e. when brands collect used or discarded products. How much of what is sold returns to the company for recycling? Moreover, companies need to monitor what happens with collected garments- are they recycled into new garments or in fact only downcycled (used for other less valuable products)?

One reason materials cannot be recycled is because the materials are contaminated for example by chemicals that hinder recycling. The students here proposed to measure the use of such chemicals or substances. By monitoring, the company can also try to minimize such use. To know if the product is made with substances that might hinder recycling, you need proper information about what the garment is made of and how it is made. Here the students proposed that H&M could develop more elaborate tags with information about the item which could help the customer to take care of it and, eventually, facilitate the recycling of the garment.

Another point that is crucial to circular operations is to keep the materials in the processes. In the textile industry, a lot of fabric gets wasted and does not end up in any garment. Consequently, some students suggested to measure the amount of material that ends up in a garments in relation to total amount of materials used. Ideally, all materials used should end up in a garment. Similarly, the students also identified microplastics as a threat because it means that small amounts of plastic fibers continuously leave the circular flow and non-renewable materials are subsequently lost.

Another aspect commonly discussed in the context of circular economy is the slowing of the circle i.e. the prolonging of a product’s life span. Here the students reintroduced the idea of enabling users to repair their clothes, for example by making sure all items come with threads or buttons necessary for repair or providing repair services in stores. The company can track both the use of repair services and number of items that customers could repair themselves.

I hope that H&M and other companies will find the students work helpful. How to measure a circular business is really at the forefront of both practice and research. In fact, two research colleagues and I just last week got financing for a project on circular business practices by Vinnova. That the students managed this task so well and were able to develop these very helpful indicators show, to my mind, that we at University teach students useful and up to date skills. We educate students that can in fact contribute to and improve current business practices.

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The link between circular economy & sustainability- a case with H&M

This morning, I introduced the case we will be working on this autumn on my course at the Norwegian School of Economics (NHH): managing business towards a circular economy and sustainability. The case is in partnership with H&M who is also a partner of the Ellen MacArthur circular economy initiative.

As I’ve written about before, I was not an early adopter of the circular economy. I do, however, teach circular economy as a trend in the sustainability area both at Örebro University and NHH. The more I reflect on the concept, the more of a convert I’ve become. So I thought I’d share some of my aha-moments about the circular economy and sustainability with you here.

First of all, what do we mean with sustainability? The established definition is from the UN Brundtland report (1987):

Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs

As Kuhlman & Farrington (2010) (one of our key references in the NHH course) writes, this sustainability definition addresses the tension between mankind’s aspiration towards a better life on the one hand and the limitations imposed by nature on the other hand. This tension between social welfare and natural resources is more often than not ignored in the business debate on sustainability. We often pretend it does not exist. And of course, there are many win-win situations where environmental or social measures also bring down costs and/or increase income.  There are definitely low hanging fruit, efforts that are win-win or at least come at no cost.

However, there are cases where tension between social well-fare and environmental sustainability undoubtedly exists. The pharmaceutical industry is a prime example. The industry argues that it provides tremendous social benefit by saving lives (or at least reducing suffering) but the environmental pollution, especially chemical and water pollution, is high, both at production  and consumption sites. Why do such tensions between social well-fare and natural resources occur?

Operating in a closed system

Some of you might have heard about the Planetary Boundaries. Professor Johan Rockström and co-authors defined nine environmental boundaries we should stay within to ensure a stable living environment (see picture, borrowed from the 2015 article). What this figure tells businesses is that we are operating in a closed system. If we mismanage certain environmental resources, such as biodiversity and chemical pollution, we cannot compensate for these in other ways. If we cross these, there is no functional living environment we can operate within.

 

Why a linear business model does not work in a closed system

Now the problem with a linear business model (which most businesses have and what we often teach students) is that it treats input to businesses (and its outputs) according to the value chain- the business uses certain input and through a number of processes produces some outputs. These inputs, resources, the business uses appear to just exist. The environment is there for us to use and not affected by our use. Likewise, outputs and externalities from our production  just go somewhere. However, as the 1990 chapter on circular economy by Pearce and Turner states, eventually the waste we produce will affect the availability of new resources. And the accumulated waste affects our well-being too. The fact that business operates in a closed system has to be taken into account. Certainly for global businesses.

Now from the planetary boundaries perspective, the best would of course be to minimize consumption and for us to produce less in order to spare the environment and stay within the boundaries. This is in line with the minimalism and anti-consumerism movement. If we consume less, we do not need to produce so much. We can share, mend and repurpose etc. This is admirable and has a place, especially in societies with overconsumption. It is my approach to my own wardrobe situation. However, at this point in the debate, someone will throw in the argument that we cannot deny developing countries the same social benefits we have allowed ourselves. If we have been flying for decades, why shouldn’t they be able to?

Kate Raworth, with a background at Oxfam, illustrated this pedagogically in her ‘Doughnut Economics‘. It is a fact that there are large groups of people that are not getting their basic needs met. And to achieve progress on this point will in many cases require use of natural resources. Here, the tension between the social development and the availability of natural resources the Brundtland report sought to address is very clear.

Consequently, Raworth put those basic social needs into Rockström’s figure, in the middle, to illustrate that we want to maximize the social well-fare of people while at the same time staying within the planetary boundaries. We want to operate, she argues, within the green ‘doughnut’ formation in the figure.

Sustainability is getting the maximum social value while staying within the planetary boundaries

Working along the lines of minimizing and restricting consumption can, at least in some cases, thus deny us social value. Similarly, what many sustainability-minded businesses do is to try to minimize the waste and externalities from production. To reduce the ‘shadow’ of business, make them ‘tread lightly’ on the environment. There are many impressive initiatives with zero waste factories and water reduction regimes. These are all good, no doubt about it. We need these kinds of initiatives. However, the circular economy further adds that ‘waste’ should not simply be removed but could also become a resource for us to use. It’s a fact that we need some amount of production and that it uses resources and that there will be some amount of waste. What can we do with the remaining waste? How can we turn it into resources?

As this post is long enough, I will simply have to write about the challenges with making waste into circular resources in a follow up post. Still, I hope you see, like I do, why there is a case for circular business in a sustainable society. And I’m so excited about our case with H&M and what the students will come up with.

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Sustainability & fish farming: working with a real case

Aquaculture, such as fish farming, is a key industry to ensure  sustainable food production in the future. Foods deriving from the seas face many challenges such overfishing and water pollution. At the same time, sea food has many benefits such as low climate impact and high nutritional value.

It is quite clear today that wild fish supply is not sufficient and that aquaculture is necessary in some form in order to supply current populations with sea food. However, fish farming has been criticized for unsustainable practices through the years and the industry still struggles with some of them like sea lice, escapes and sustainable feed sources.

In the course I teach at NHH ‘Measuring sustainability’ we each year work with  a real case on how to measure sustainability. Last autumn, we collaborated with Norwegian Responsible Investment association Norsif on how we can measure and evaluate the sustainability of aquaculture companies. One of the things I love about these cases is the creativity the students show when coming up with new ideas and solutions. I truly believe this kind of creativity, combined with academic thinking and facts, is one of the most important skills we can teach students.

One of the learning points from working with the aquaculture case is how important national regulation is for sustainable fish farming. One of the drastic differences is the use of antibiotics. Aquaculture uses significant amounts of antibiotics, which is a critical issue considering antibiotic resistance, but the industry also shows that it can do without it when it has to, such as in Norway.

Another difficult issue is that fish farming in Europe is mostly done with omnivorous fish such as salmon. It is less efficient to raise fish that partly eats other fish than fish that only feeds on algea. Instead of feeding the salmon other fish, we could eat this fish directly and thus skip the step of raising the salmon. The fish in the feed can also lead to further overfishing. Of course we can feed salmon a vegetarian diet but salmon that are fed on vegetable rather than animal proteins may be lacking in Omega-3, which is one of the main reasons salmon are so healthy for a human diet. A better solution would be to instead farm a fish that naturally feeds on for example algea.

Another key issue for sustainability, the students discovered, is future orientation of the companies and investment in research to find sustainable solutions to issues we have not yet solved. During the course, we we’re visited by the head of sustainability and risk at Cermaq, Wenche Gronbrekk, who explained how the company works to address sustainability issues. Wenche has answered a few of my questions below and also describes their investment in future solutions: iFarm.

Sabina: The Norwegian aquaculture industry has made quite some progress in terms of addressing its sustainability challenges. What are, in your opinion, some of the main achievements? 
Wenche: We have made great progress in lifting the industry standard the past years through collaboration –  through dialogue and knowledge sharing between government, research and industry. Also, in the Global Salmon Initiative (GSI), addressing key issues such as standardization, feed ingredients and biosecurity. Vaccine development has also been key to advancing sustainability to the level we see today.

Sabina: Still, as we have learnt when working with this case, challenges remain. What’s on top of your to-do-list in terms of sustainability?
Wenche: Sustainability requires continuous effort, and we work every day to be better than just complying with minimum standards. Developing new solutions that address key problems is also a priority – such as our iFarm concept. It may solve many of the key challenges today through individualized treatment of each fish, increasing animal health and welfare, optimizing feeding and any need for treatment, which may in turn reduce the environmental footprint of our activities.

Sabina: Sustainability is, according to its definition, about the long term perspective, future generations even. Still most organisations operate with a shorter time perspective in their day-to-day business. How are you able to take the long term perspective into account?
Wenche: Salmon farming is largely dependent on taking a long term view – we operate in the sea and biological risks do not respect financial quarters. To have a business over time, our operations need to be sustainable in all aspects: environmentally, socially and economically. 

Sabina: Many who work as sustainability officers or even head of sustainability find that change management is crucial in order to conduct their work. Is this your experience as well?
Wenche: As a sustainability officer you need to work across the organization, break silos and in many ways be a change agent. Integrating sustainability in business strategy also means that many companies need to innovate their business model – and it is my experience that sustainability professionals often play a central part in this transformation.

A big thank you to Wenche and Cermaq for sharing your experiences with us and also to Norsif and Norsif member Folketrygdfondet and Tine Fossland who attended the students presentations and provided feedback on their evaluation models. We could not have done this without you!

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Is expensive fashion more sustainable?

You might, as I once did, think that you avoid the sustainability issues in fashion because you don’t shop at H&M, Gina Tricot, Dressman etc.

The short answer is no, expensive fashion is not necessarily more sustainable. Luxury production in Europe should guarantee better working conditions and less chemicals, but only a few luxury brands still produce in Europe. Those who do might only produce certain parts of the collection in Europe. And ‘Made in Italy’ can these days mean made by Chinese in Italy. Even when something is made in Europe, the fabric may be imported. Luxury brands often source their materials from outside of Europe and then we have the issues with conventional cotton and synthetic fibre etc.

There are also environmental issues with the chrome and heavy metals involved in tanning of leather. If you do want a new luxury bag, check where the leather came from, that it can be tracked to sustainable farming, and for vegetable tanning. I found that Swedish brand Palmgrens had a longstanding relationship the Italian farm the leather derived from and used vegetable tanning processes for a certain bag. Thus it’s the last bag I’ve bought, before my current year of no-shopping, and I don’t feel I compromised on design just because I focused on sustainability.

Another issue with luxury brands is that they don’t consider the environmental impact of care. Many put dry cleaning on the care instructions (as on this Ralph Lauren jacket, made in the Philippines) which isn’t environmentally friendly. And, in many cases, the items are better cared for by hand washing. I don’t know how many times the dry cleaner couldn’t remove stains and when I try at home, as a last resort, it works perfectly. Money and chemicals wasted.

The luxury conglomerates seem to lack a thorough understanding of sustainability issues. For example, when LVMH reports on biodiversity, they write about how they finance biodiversity research rather than how they take biodiversity into account in their sourcing of raw materials. Now I am all for funding research, of course, but certain issues we already know a lot about, such as pesticides and biodiversity. We can act on these today.

Similarly, it is admirable that Kering has developed the Environmental Profit and Loss account (which I often teach to students) but more important is how they handle their everyday sustainability challenges. I searched for organic on Kering’s website and only found ‘organic growth’.

Taking the opposite road, many cheap brands are not as diligent about working conditions and where things are made* but are instead rapidly increasing their share of ‘better’ or organic cotton and renewable fibre. They hardly ever prescribe dry cleaning. But then again they don’t make clothes that should last.

Thus while some brands are working on social issues and others focus on some of the environmental, few brands cover all the necessary issues. Those who do are generally those that started their business with a sustainability focus. These brands are generally slightly more expensive than fast fashion but usually much cheaper than luxury brands.

So the answer is no: price is not a good indicator of sustainability.

* The Inditex group (Zara, Massimo Dutti etc. ) is an interesting exception. Around 60% of their suppliers are located in proximity to the headquarters in Spain.

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Sweden to become a ‘circular economy’

The Swedish government is investigating how it can promote a ‘circular economy’.  Now, what is a circular economy? While it is not so well defined, I’d say it’s an ambition to keep materials in a loop. Nature tends to work with cycles (the carbon cycle for example). Businesses, the circular economy proponents say, should mimic such systems. In a circular economy,  waste should become input to new production. In addition, there’s the idea that sharing and renting is better than owning things (I’d like to see some evidence for this).

The Swedish government’s investigation into the circular economy resulted in a 400 pages report, released last week. The report suggests tax deductions for rental, second hand and repair services, which sounds like more of what the Swedish government has already done. Other suggestions are for example to increase access to carpools and to facilitate prevention of waste (the latter is always a good idea).

When I encountered the ‘circular economy’ concept, I was initially a sceptic. It might be an academic instinct to question terms the industry has invented. ‘Isn’t this just a new fancy concept for recycling?’. Lately, however, I have slightly changed my mind. The more I learn about the waste issue the more it seems necessary that companies ‘design out waste’ (as the circular economy proponents put it). We need to have a plan for what happens to the materials and products when they are discarded. We need to make sure that our products are safely recyclable and can potentially be recycled more than once. If the circular economy concept is helpful for businesses (or states!) in order to work on these issues, then that’s more important than the lack of definition.

I also find the circular economy system diagram useful. The ways in which materials circulate are put into a hierarchy where maintaining products (such as mending) is more desirable than recycling. This seems very reasonable.

Now my research area is really the measurement of such initiatives. And, as it happens regularly, I got a really good question from a student some week ago: “How can we measure whether a business is circular?”  While businesses are quite different from nation states, the Swedish government’s report has in fact suggested some indicators for whether a country is ‘circular’. The proposed indicators measure the amount of recycled materials, the use of raw materials and the amount of waste produced. These are standard indicators that companies disclose in their sustainability reports. In a business setting, such indicators are nothing new. However, they might be more difficult to calculate on a national level. The government report suggests no indicators for the sharing, renting or repairing ideas of the circular economy.

Clearly, this is an area that needs some more work. Now if the Swedish government would want some help with measuring their circular economy ambitions, I am here to help 😉