Innovation Forum’s Bea Stevenson and Ian Welsh reflect on some of the outcomes from Innovation Forum’s 2023 conference series, that highlighting the issues that have emerged in the past 12 months, including the move from voluntary to mandatory approaches, the related increase in necessary corporate due diligence, why business leadership is more important than ever, and how to get communications right and avoid greenwashing.
Voluntary to mandatory action
Unintended consequences of Europe’s deforestation regulation
In 2023 we have seen the impacts of the transformative period for companies as they navigate the paradigm shift from voluntary to mandatory sustainability actions. A notable development was the announcement of what the EU Deforestation Regulation will look like in June. These rules, designed to curb the EU market's impact on global deforestation, are due to come into force at the end of 2024. The regulation will mean a ban on any of seven commodities – soy, beef, palm oil, wood, cocoa, coffee and rubber or derived products – sourced from areas affected by deforestation or forest degradation practices.
Whilst the much-anticipated regulation has been seen as a well-meaning step in the right direction, many voices have raised concerns over the practical implementation of the regulation, particularly with regards to the ability of smallholder farmers to comply. Some commodity supplier companies have said that an inevitable consequence, if the regulation is enforced as currently framed, will be the exclusion of smallholders from EU supply chains.
Throughout 2024, those working in the commodities concerned will be looking for further clarification to address legal requirements, perhaps through an extensive open consultation to facilitate solutions that enable smallholders to continue supplying the EU.
Driving due diligence
2023 has also seen the continued tightening of regulation surrounding human rights and due diligence in supply chains. Corporate attitudes toward responsible procurement have certainly undergone a significant transformation in recent years, with discussions now emphasising the “how” of delivering sustainable change over the “why”. With the shift towards more responsible and sustainable supply chains, companies must exercise caution to prevent unintended consequences such as withdrawals from high-risk regions. That is not the intention of the tightening regulation.
Exciting developments in climate and farming policy have been the subject of our discussions in the US, with the Inflation Reduction Act and the Biden administration doubling down on its recommitment to tackling climate change and the Paris Agreement. There was a real sense in discussions that these initiatives are set to provide a unique confluence of private sector aspirations and federal government funding, offering substantial resources to construct a new green economy. The money is there – it just needs to find a home in projects and initiatives aligned with the real goal of the act: to revitalise the economy through decarbonisation.
The US Department of Agriculture has taken a voluntary approach, putting incentives in place for farmers who want to take sustainable action to do so. In the US, regulatory safeguards will be important, alongside a recognition of the innovation that comes from voluntary initiatives.
Leadership from the top – and careful embedding throughout
At the heart of sustainable business progress lies C-suite leadership. Throughout our conferences in 2023, a palpable sense emerged that business leaders have not only acknowledged the imperative for sustainable change, but have actively embraced the business case for it. We heard several cases of top-down commitment cascading through company culture, creating an ethos that prioritises decarbonisation as a non-negotiable aspect of future success.
With leadership buy-in, middle management is empowered to translate commitments into tangible actions. Building a sustainable culture and ethos, and then translating this into action, requires a nuanced approach to metrics and incentives, including the integration of effective sustainability-linked performance pay and robust supplier incentives that align with sustainability metrics.
Communication is key
As the sustainability landscape evolves, so must the language and communication around it. To facilitate consumer empowerment and sustainable choices, there is an urgent need for improved brand communication and broader initiatives for better labelling. The EU’s anti-greenwashing rules are crafted to level the playing field, ensuring that exemplary companies pioneering transparent communication on sustainability credentials do not lose out as a result.
However, there is a danger of “greenhushing”, where companies may hesitate to communicate at all around sustainability credentials or progress on targets, because of the threat of penalties or accusations of greenwashing. It is crucial for the industry to avoid fostering a culture of shaming and over-criticising as companies seek to engage stakeholder on their sustainable practices. At the same time, companies must be clear on targets and progress, and be able to back up statements with robust evidence.
Talk to suppliers
Enhancing communication with suppliers will make all the difference, as companies look to clean up supply chains. Businesses must secure supplier buy-in on decarbonisation plans, extending the conversation beyond internal strategy sessions to include the perspectives of farmers, workers and other businesses in their supply chains.
The integration of incentives for responsible behaviour and clear expectations is essential on the supplier side. Driving the expansion of supplier incentives simply makes economic sense, recognising that sourcing from a limited number of dependable players is impractical, given the inherent risks in many markets.
Engaging with individuals at the base of supply chains provides a tangible benefit; these voices will have invaluable insights into potential risks and dangers, both in terms of potential human rights abuses and regulatory non-compliance. Establishing and nurturing open lines of communication with these stakeholders is imperative for gaining the real visibility needed to navigate complex supply chain challenges. Leading companies must actively engage suppliers, fostering coherent conversations on key issues that transcend the immediate business landscape.
Setting targets and getting started
Companies, propelled by ambitious net-zero goals for 2050, are tackling the challenge of setting the short-and medium-term targets necessary to translate these commitments into action. Striking a balance between overarching goals and immediate steps is crucial. Long-term transition plans must persist, but the focus should shift toward the near future with interim targets for 2025 and 2030.
Collaborative initiatives, such as the FLAG framework, offer sector guidance, while cross-industry collaboration can help to address shared challenges in data management and multi-tiered supply chains. For companies, setting and reviewing science-based targets for climate – and with new SBTN guidance in 2024, for nature – will be paramount.
With emerging guidance and tools, companies are being empowered to take action as swiftly as possible. Across Innovation Forum’s conferences and other conversations we have heard how decision-makers must not let the perfect be the enemy of the good, when it comes to getting started on and implementing sustainable change. Urgent progress is needed, and action must be taken now. Accuracy to the fourth decimal point is less important than taking those first brave steps towards implementation.