Sustainability, the course of supply and demand in Europe and the challenges ahead.

Stefan Crets
Executive Director : CSR Europe

It appears that the pandemic is here to stay, so the changes in consumer behavior will stay too. Could you elaborate on how the European companies adapt to this new reality and how CSR Europe contributes to their ability to change with the same dynamics and speed as consumers?

It’s surprising that you say it changes consumer behavior. The first thing that I see the companies deal with is the pandemic’s impact on their production and their employees. That is a big agenda for us. There was already the agenda of the Future of Work and the validation in the green transition. However, suddenly there are all these requirements of more flexible work arrangements, home working, social distance working, etc. There is a big, big, big agenda on how to get work organized, and the primary question here is how do they care for their people in the first place? We have seen some companies expanding their care arrangements globally; much beyond their legal requirements. So the first impact on profits of the pandemic is not so much the consumers. However, it’s their employees, production systems, and supply chains. We all know about the shortages in the supply chain, the bottlenecks in the supply chain, etc. So, it’s much more than the change in consumer behavior, which we are dealing with.

Consumers have been heavily affected all over the world. Does CSR Europe take a holistic approach considering equality of workers, riots, and their lives?

There is a difference between pandemic influence and green transition influence. The consumer, as such, does not drive the sustainability agenda. It’s not the consumers, it’s the regulator, it’s civil society, but the consumer, as such, is not a big driver for electrification. We do a lot in automotive, electrification of cars which is not coming on from the consumer. It’s putting the consumer in a situation because the price goes up. For example, rising inflation and energy prices put much pressure on the consumer in terms of cost of living, and tackling this is not the first problem of the companies, but an issue of the governments. The consumer does not drive the sustainability aspect; they still buy the cheapest product. Consumers can say they want to be environmentally friendly until they buy something else in the supermarket.

Wouldn’t you say consumers are globally aware and influence the law of supply and demand? For example, the whole climate crisis or the movements of climate justice. They have been driven by consumer awareness.

It has been driven by civil society awareness and by citizen awareness. There is a difference between the citizen and the consumer. Those young people in the street are protesting due to the climate crisis with their Apple iPhones in their hands. They film the demonstration with Apple iPhones in their hands, which are made in Taiwan or China. That has an environmental impact. You have to make a difference between the consumer and the citizen. There is a gap between citizens and consumers, between activists and what they consume or how they travel. For example, my children are very much aware of and are concerned about the climate agenda; however, we still fly to Greece. The sustainability agenda is not so much consumer-driven; it’s a citizen-driven societal, political, and business agenda. It’s businesses that are driving that agenda as well. Look at Patagonia advancing on that or the yellow vest, ‘Les Gilets Jaunes’ in France, what was that? That was the consumer who protested against climate-related changes. The price went up. And that’s why in CSR Europe, the big agenda of the coming years is social: “How to make an inclusive Green Deal and make all these changes?”

Two days ago, there was this report by the automotive supplier association. Five hundred thousand jobs are at risk in Europe because of electrification. Why? Because those five hundred thousand are working with suppliers who are making internal combustion engines. If you speed up electrification, they will make those people obsolete and those factories obsolete. How do you make that transition? That’s a big worry. The change from diesel to electrification immediately impacts platinum mining if you talk about Africa. We want to become greener, and the people in the platinum mines in South Africa lose jobs or have much more difficulty. How do we take care of that? That’s a societal question, and I would think that’s the big agenda. How do you make this transition that we all need, that citizens ask for?

Considering the impact the pandemic and the current energy crisis have on the global supply chain, how do you think the European companies can walk through a process of responsible sourcing and supply decarbonization, with the evident conflict the world is phasing between the green transition process and the impact on supply chain, inflation and its natural consequences on the quality of life of workers, consumers and in general communities?  

The simple answer is engagement. You know that in Europe, there is much influence in MEA and on the due diligence, human rights, and due diligence agenda. It’s an influential agenda. However, suppose you only focus on companies. In that case, you have to check the risk and avoid the risk of sourcing materials that are not sourced sustainably. There is a risk that the lazy companies will start pushing those suppliers out, which is not the purpose. You have to make sure that the suppliers you work with engage with them to improve the wages they pay to their employees, the environmental impact they have, etc.

It’s not enough to have due diligence. You have to make sure that your downstream companies can also engage locally with their suppliers. That’s why it’s an engagement agenda. How do we tackle the impacts? That is something not only companies can do; for that, you need governments and civil society linked to it. Commonly, that’s why you can find the discussion paper on due diligence on our website, which asks about the accompanying measures? How do you make alliances between companies, civil society, and governments to tackle the issues in the supply chain? To work with the suppliers? Do we source cobalt from the Congo, from DRC? Yes. Do we know there is a problem? Yes. Of course, there is a problem. How do we engage with the mines? How do you engage with artisanal mining communities? Who should do that? It’s not only the companies. If we start avoiding, which is not possible for the moment, but if you start avoiding cobalt, will the Congolese relations become better? Will they be better off? No. They will lose a possibility to advance. But can we accept child labor? Also not. You work locally to deal with those issues. So that’s why I always say: “leadership is about engagement”, It’s not about letting it go, and that’s why what CSR asks: “how do we create that engagement?”

Could you give me an example of something you do to create engagement?

If I go back to DRC, in Congo, we have a project that makes sure that the mining companies engage with their local suppliers to improve the environmental and social standards they are using. We are building up a kind of local sustainability network between large mining companies and their suppliers on sustainability. And that can be about the clothing miners are using, that can be about the environmental impact, that can be about a joint capacity building program, starting from the great minds to their smaller suppliers.

If I go back to Europe, there is an issue of truck driving; the social standards for truck drivers. That is a big problem in Europe, with several shippers and carriers. “How can we measure the problem in the truck driving business? How can we see where there are issues? And how can we build capacity between the shippers and the carriers to deal, for example, with a better hosting environment when the truck arrives in your warehouse?” It is that very tactical work that will make the change. The companies are required to engage in that. You can’t just say: “Ah, yes, it’s a problem, let’s try to avoid it.”

How is CSR managing the tremendous challenge that companies face for creating an ESG culture implementation and, of course, the need to measure the results and transparently communicate to their stakeholders, clients, and investors?

We have a leadership model in CSR Europe. If a company wants to be mature on sustainability and integrate ESG into its operations, there are three elements. First of all, how do they manage their business? This is the foundation. Do they take it into account when they organize their HR processes, finance processes, tax processes, and purchasing processes? Do they take into account ESG considerations, and how do they integrate that? Do they have policies? Do they have targets? Do they have KPIs? Do they follow it through? Do we focus a lot of our work on how we can manage internally to improve? That is the foundation; that’s the first element of our leadership model. The second element is then collaboration. You cannot do it alone. Even if you are a big company, you cannot manage your ESG impacts alone. You will have to collaborate. That’s why we set up collaborative platforms in the truck sector, in the automotive industry, on biodiversity, on all kinds of topics where we create the opportunity for companies to work together on it and tackle some of the sustainability challenges together. That’s the second element of leadership; it’s collaboration. The last one is advocacy and systemic change. How do you reach out in your sector? How do you reach out to policymakers? How do you engage with civil society to make sure that the system change is happening?

These three elements: the foundation is your management systems and how to improve them. For that, we have an offer to our members from best practice sharing and learning, assessment tools, benchmarking tools, etc. After management comes collaboration, where we provide collaborative platforms on all kinds of topics. Lastly, systemic change is our relationship with stakeholders and with the European Commission. Those are the three elements of our leadership model.

How do your members communicate these results to their stakeholders and clients?

They usually have sustainability reports, and there are legal requirements related to these reports, and that’s a big agenda for the moment in the European Commission with the CSR. The plan and the taxonomy agenda are all about how you report being transparent about your impacts and how you manage them.

How do you see your members and your initiative for the long term in your ideal scenario? You, as the founder, where do you see this going?

I came from Toyota originally; what I learned there, which I think was a powerful lesson for me, is: ‘it’s all about improvement.’ There is not a perfect situation. But, of course, you can define an ideal situation. It’s always about: “How can you continuously improve?” That is my vision, and I hope my members take it seriously and improve. I don’t want too many shiny presentations about how great the stuff they do is, or what kind of certification they got, or how many poor people they helped. I want them to improve their management system, their business management, and their impact on climate and people. You always bump into challenges and difficulties. It’s like in a regular business. You always bump into problems; it’s the same with sustainability. It should be part of standard business management.

You talked about how you don’t want too many shiny reports. Yet, you said that the primary way we in the field communicate results and then to the outer world is through our sustainability reports. How do you and how do we in the field address the critiques towards these reports?

Reporting should not be an end in its own right; it’s a means to an end. And the end is management improvement. We do report reviews for our members, and one of the things we always look at is if the targets have been defined. We also assess whether the companies are showing progress or non-progress to those targets? Because then, year after year, you can follow it and manage it internally. That’s why reporting is a means to an end. It should also lead to transparency, and that’s why there are audits present. But it should be used internally to drive the change and to drive the improvement. Reporting is not PR, and more companies have started to understand that. If you were to look at sustainability reports 5 or 10 years ago, it seems very much like: “Look how great we are.” Now they get more and more integrated into the regular annual reporting, industrial plan reporting, etc. When it’s more factual and more about: “Where are we going?” they become more strategic. Not all of them yet, and many are still very much PR-oriented, but we see much improvement. I am very optimistic about it.

Do you work with companies, with businesses in the Middle East and Africa?

We only have big multinational companies as members, so they all have activities. Almost all of them have activity in the Middle East and Africa. They are global companies. So a number of them are headquartered in Europe, a number of them are headquartered in the US, and a number of them are headquartered in Japan and even China. So they all have global operations; I think most of my members would have procedures in the Middle East and Africa.

Is there any interest in CSR Europe expanding to companies, also quite large companies, but that originated in the region? And if so, what is hampering you from extending the network further, or is it just that you’re not there?

We are not proactively seeking them. So companies come to us when they say: “Ah, I think we want to improve.” Because the membership criterium is: “are you willing to improve your sustainability performance? Are you willing to collaborate with others on it?” We are not proactively doing a recruitment campaign. However, suppose they see an added value in sharing and learning with other companies and engaging in the policy dialogue and in the collaboration piece. In that case, they are welcome at CSR Europe. We are not only for Europeans. Despite the name, our operations drive sustainability with a collaborative platform. We have operations in Russia, China, Latin America, Africa, and many others. Our projects on raw materials are global; the raw material sourcing agenda is global.

How realistic is it that companies, not just European companies, would appear as front runners in working towards the SDGs?

The summit is called the SDG Summit. The SDGs are a joint agenda; it’s not only a corporate agenda. I think the SDGs are a very good common language: ‘fighting poverty .’You can use the SDGs to say, look: “We are trying to do this, but with others, we would like to work together to strengthen this, or to learn from it.” So it provides a good common language, specifically in the multi-stakeholder type of sphere. So for that, they are very good. They provide a common language. “This is our big business contribution to the SDGs.”: In the beginning, many companies were wearing this kind of logo, but when you can contribute with others towards it, then it becomes much more interesting and credible. There’s always the risk of PR and greenwashing. So rather than using logos, use the language.

The Commission is not referring that much anymore to the SDGs. They made their own Green Deal. And we helped them do that; we made an SDG platform, a multi-stakeholder platform, for a few years. But then when the Green Deal came in, they said: “Yeah, but we will talk Green Deal and not SDG.” So I don’t see the language of the SDGs popping up that much anymore in the EU. They talk about the Green Deal.

Final remarks by CSR Europe: The corporate agenda is more unified than the geopolitical agenda. Climate change and sustainability agenda is a global agenda. It would be good if Europe became a little bit less western-centric. But, on the other hand, If MEA companies want to influence that, they need to engage. It’s always engagement.