ETHICS AND CORPORATE SOCIAL RESPONSIBILITY - SESSION 4:

SUSTAINABILITY AND CSR STRATEGY AND TARGET SETTING

DR. MICHAEL VERBÜCHELN – DIRECTOR METHODOLOGY DEVELOPMENT | JANUARY 09, 2024

 Overview of sessions and schedule for the course

Group assignment Session 10:

February 02, 2024 Group presentations and Wrap up

Session 9:
Managing Sustainable Business Models
sustainability
January 23 & Session 7: Session 8:
February 02, 2024 From Output Measurement to Impact Management
Impact Valuation

Session 5: Session 6:
Beginning the Corporate Social Irresponsibility Business Ethics
sustainability
transformation
Session 3: Session 4:
January 09 & 10, 2024 Regulatory Landscape and Sustainability and CSR Strategy and
Sustainability Disclosure Target Setting

Fundamental concepts Session 1: Session 2:

January 08, 2024 Introduction to Sustainability Introduction to CSR

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Guiding Questions

1. What does a Sustainability / CSR Strategy entail?

2. What are „Transition Pathways“ and „Transition Plans“?
3. How to set meaningful sustainability targets?
4. What are the most essential tools in sustainability and CSR
management?

What is the sustainability

strategy of the company
you’ve been working for?

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 Sustainability Strategy

A sustainability strategy can be defined as:

„a set of instruments and ways of working which
enable sustainable development challenges to be
tackled in a coherent and dynamic way.” (OECD 2001)

When creating a sustainability strategy, a ‘value

lens’ approach should be adopted to enable long-
term, sustainable value for your business by
effectively and responsibly managing
environmental and socioeconomic impacts.

Responsible and purpose-led decision making is

supported through identifying, managing and Image: Sustainability Illustrated
monitoring material sustainability risks and
opportunities.
Source:
https://www.oecd.org/dac/environment-development/1899857.pdf
https://www.pwc.com/my/en/services/sustainability/strategic-sustainability.html

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A strategic framework to navigate the
sustainability journey

Why does your company exist?

What is the desired future world the company

wants to create?
How does the company plan to deliver its vision?
Purpose What principles existing in the company to guide
and judge its behavior?

Vision, Mission,
What are the material issues related to the business
Values
model of your company?

Material Which sustainability issues should be prioritized?

issues
Prioritized What targets do you want to achieve and how do you
issues want to measure them? (long-term vs. short term)
Targets What activities do you plan to conduct to realize
and KPIs your targets?
Actions Building on Corporate Citizenship (2015): Sustainability Strategy - Simplified

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 Example Strategy: Bayer

Source: https://www.bayer.com/en/sustainability/sustainability-strategy

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Example Strategy: BMW

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 Which ambition level fits your business strategy?

THE PI AMBITION LEVEL CONCEPT (REAL ECONOMY / FINANCIAL SERVICES)

FIVE AMBITION LEVELS TO INTEGRATE SUSTAINABILITY INTO STRATEGY

NO AMBITION (NA):
"We do not integrate
sustainability in any way into SUSTAINABILITY
our organization, e.g., as we DRIVEN
see no benefit in it for us"
(however, we need to comply
to current legislation) STRATEGIC

PRAGMATIC

ONLY PR: STAKEHOLDER

"We have communicated COMPLIANCE NET+ SOCIETAL IMPACT
commitments on
sustainability, however, there GROWTH GROWTH
LEGAL COMPLIANCE
are no appropriate PRODUCTIVITY PRODUCTIVITY PRODUCTIVITY
measures/processes for them
RISK MANAGEMENT
RISK MANAGEMENT
RISK MANAGEMENT
RISK MANAGEMENT
RISK MANAGEMENT
/ they are disconnected from
actual business activities"
LEVEL OF INTEGRATION

REACTIVE PROACTIVE

Source: positive impacts (PI) GmbH (2022)

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Guiding Questions

1. What does a Sustainability / CSR Strategy entail?

2. What are „Transition Pathways“ and „Transition Plans“?
3. How to set meaningful sustainability targets?
4. What are the most essential tools in sustainability and CSR
management?

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 Transition pathways

Each industrial ecosystem must transform its business models and

value chains to become the foundation of a green, digital and resilient
economy. Such transitions require concrete and actionable plans
(transition pathways) developed for each of the industrial ecosystems.

A transition pathway is therefore an actionable plan for all

stakeholders of a given industrial ecosystem to follow to successfully
achieve the green (environmental and climate) and digital transition,
eventually leading to economic, environmental and social
sustainability.

Transition pathways also analyze whether any critical dependencies

exist within that ecosystem which industry actors and policy-makers
may want to address in order to improve the ecosystem’s
resilience.

Source: https://single-market-economy.ec.europa.eu/industry/transition-pathways_en

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 Transition pathways

All relevant stakeholders of an industrial ecosystem come

together to build the transition pathway. This includes industry
members, public authorities, social partners and other
stakeholders.

Source: https://single-market-economy.ec.europa.eu/industry/transition-pathways_en

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 Building blocks of transition pathways

1. Sustainable Competitiveness: assessing how the ecosystem is performing

on green and digital relative to other ecosystems and to similar ecosystems in
third countries;
2. Regulation and Public Governance: assessing the extent to which the
regulatory framework is helping or hindering the transition and move to greater
resilience
3. Social Dimension: assessing both the social implications of the green and
digital transition and the measures that can be taken mitigate these, social
market economy practices and institutions, i.e. the social dialogue;
4. R&I, Techniques and Technological Solutions: looking at how research and
innovation and the promotion of sustainable and advanced techniques and key
enabling technologies can help the transition and move to greater resilience;
5. Infrastructure: looking at the changes needed for the physical infrastructure
to best support the green and digital transition or to overcome potential
barriers;
6. Skills: assessing the skills needs in making the green and digital transition,
and how these can best be met; including through social dialogue
7. All these building blocks should in turn help identify the Investments and
Funding needed in the ecosystem to make the transition and ensuring greater
resilience
Source: https://ec.europa.eu/docsroom/documents/49407

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 Components of transition plans for the real economy

Transition plans outline the concrete steps that firms are planning to take in order to align their strategic
actions with a world that is moving towards net-zero.

Source: https://www.gfanzero.com/our-work/financial-institution-net-zero-transition-plans/#real-economy;
https://www.bundesbank.de/en/press/speeches/-transition-plans-the-next-step-on-the-path-to-net-zero--910326

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 Example: Unilever‘s transition plan

Source: https://www.unilever.com/files/92ui5egz/production/56a097ca6baaa654e78dfa8a820257d9a9edabf0.pdf

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Guiding Questions

1. What does a Sustainability / CSR Strategy entail?

2. What are „Transition Pathways“ and „Transition Plans“?
3. How to set meaningful sustainability targets?
4. What are the most essential tools in sustainability and CSR
management?

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 What is a good sustainability target?

When defining sustainability targets, keep in mind the following aspects:

1. Meaningful – targets should set out measurable improvements in
performance (the change in a KPI) over a specified time period (e.g.
we will reduce carbon emissions by x% over the next z years).
2. Material – targets should be clearly linked to the key strategic goals
and impact areas of the business. Achieving targets should drive
mainstream business performance.
3. Comprehensive – targets should cover the most important social,
environmental and economic impacts of the business.
4. Consistent – targets should remain relatively consistent over time,
so internal and external stakeholders can assess how performance
is changing year-on-year.
5. Ambitious – companies should set targets that move beyond
business as usual. Not everyone wants to be a leader, but targets
that are achieved early with little effort can indicate a lack of serious
performance ambition.

Source: Corporate Citizenship (2015): Sustainability Strategy - simplified

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Science Based Targets

Science-based targets can be defined as:

measurable, actionable, and time-bound objectives, based on the best
available science, that allow actors to align with Earth’s limits and
societal sustainability goals. (Science Based Target Network, 2020)

Environmental targets: are often connected to the Science Based

Target Initiative or Network and should align with the 1.5 degrees
trajectory.

Social target setting often builds on international standards and

frameworks (e.g., SDGs, UN Human Rights, …). It often involves
targets on human rights, work conditions, and diversity, equality, and
inclusion.
Science based targets do not include social components yet. Insights
from the Doughnut Economy can help to formulate targets in line with
social foundations for a safe and justice space for humanity.

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 Aligning strategic decarbonization targets with
the Paris Climate Agreement

▪ The Science Based Targets initiative (SBTi) drives climate action in

the private sector by enabling organizations to set science-based
emissions reduction targets.
▪ The initiative shows organizations how much and how quickly they
need to reduce their GHG emissions to meet the goals of the Paris
Agreement.
▪ Companies can ‘certify’ their targets as science-based by going
through a target validation process. If the targets are assessed
as ‘science-based’, companies can publish their reduction
goals on the SBTi platform.

Process of setting a science-based target:

Source: SBTi (2023)

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SBTi progress dashboard

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 Science Based Target Network (SBTN) –
„Biodiversity Targets“

Similar to the SBTi for climate / GHG emission targets, the

SBTN sets a framework for nature-related targets.

The approach follows 5 distinct steps:

1. Assess: What and where are your company’s
biggest impacts and dependencies on nature and the
environment?
2. Prioritize: Where do you need to focus and take
more action? (direct and indirect control)
3. Measure: Collect baseline data for your priority
targets and locations and where possible set targets.
4. Act: Use the SBTN Action Framework and act to
avoid future impacts, reduce current impacts,
regenerate and restore ecosystems, and transform
systems.
5. Track: Finally, monitor progress toward targets and
report publicly on this progress.

https://sciencebasedtargetsnetwork.org/how-it-works/what-are-sbts/ Source: https://sciencebasedtargetsnetwork.org/wp-content/uploads/2020/11/Science-

Based-Targets-for-Nature-Initial-Guidance-for-Business.pdf

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 SBTs take aim at the drivers and pressures fueling the
degradation of nature, and the state of nature itself

Source: https://sciencebasedtargetsnetwork.org/wp-content/uploads/2020/11/Science-Based-Targets-for-Nature-Initial-Guidance-for-Business.pdf

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Sustainability targets and their alignment with SDGs
(Example: Bosch)

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Climate-related targets: Examples from the
automotive industry

Let’s discuss:
How would you assess a climate target
in terms of comprehensiveness,
ambition level, and feasibility?

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 How do financial market actors evaluate
strategy and targets? It helps us to define how sustainable is the company

1. Public commitment to sustainability: Are there any public commitments to

sustainability e.g., on the website?
2. Sustainability disclosure: Is there a reporting of sustainability in place? Is it in line
with international or national standards?
3. Material impacts of the business model: Was a materiality assessment
conducted? Are the most material impacts of the business model disclosed?
Perceived maturity level of company

4. Clear governance and accountability processes: Are clear governance

mechanisms in place and communicated?
5. Long-term commitments: Are net-zero and other long-term commitments in place?
Are those commitments in line with important political agreements (e.g., Paris
agreement)? Is a transition plan in place, outlining a clear pathway to achieve long-
term commitments?
6. KPIs and related targets: Are clearly defined KPIs in place to monitor the progress
for set targets? Are short-term, mid-term, and long-term targets defined?
7. External validation: Are data or targets assured or validated by third parties (e.g.,
SBTi, SBTN, etc.)?

Building on Net-Zero Banking Alliance recommendations: https://www.unepfi.org/wordpress/wp-

content/uploads/2022/10/NZBA-Transition-Finance-Guide.pdf

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Guiding Questions

1. What does a Sustainability / CSR Strategy entail?

2. What are „Transition Pathways“ and „Transition Plans“?
3. How to set meaningful sustainability targets?
4. What are the most essential tools in sustainability and CSR
management?

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CSR management instruments
A brief overview

1. Mission or value statements

2. Codes of ethics/Codes of conduct
3. CSR managers and committees
4. Risk analysis and management
5. Reporting/whistleblowing channels
6. Ethics Education and Training

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 CSR management instruments:
Mission or value statements

General statements about corporate aims,

beliefs, and values.
• Frequently include social goals.
Patagonia:
• Can help to integrate CSR in the company‘s “We’re in business to save our home
identity, set behavioral guidelines for planet.”
employees, and direct managerial attention to
CSR
Starbucks:
• Has to be backed up by substantial CSR “Inspire and nurture the human spirit – one
management throughout the organization! person, one cup and one neighborhood at
a time.“

SAP:
“We collaborate every day to help make the
Crane, A., & Matten, D. (2010). Business Ethics: Managing corporate citizenship and sustainability in the
world run better and improve people's
age of globalization. Oxford University Press. lives.”
Tourky, M., Kitchen, P., & Shaalan, A. (2020). The role of corporate identity in CSR implementation: An
integrative framework. Journal of Business Research, 117, 694-706.

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 CSR management instruments:
Codes of ethics/Codes of conduct

• Explicit outlines of what type of conduct is desired and expected of employees

from an ethical point of view within a certain organization, profession, or
industry.
• Voluntary statements that commit organizations to specific beliefs, values, and
actions that set out appropriate behavior for employees.
• „Cut-and-paste mentality“ raises the question of whether organizations actually
implement codes or whether code development is a mere symbolic act.

Success factors:
• Participation of organization members in the development stage;
• Detection of violations (e.g., via auditing or whistleblowing); Boeing CEO Harry Stonecipher:
• Sanctions for breaches of codes; Forced to resign in the mid 2000‘s
following revelations that he was
• Consistency between policy and actions (also on top management level).
having an affair (including explicit
• Pressure from market actors (e.g., shareholders) to take a code seriously.
email exchanges) with a female
• Integrated of the code into routine activities (e.g., via training programs). executive of the company - a
breach of the very ethics code that
Codes that are not implemented and followed-up may raise employee resentment and cynicism!
he himself had promoted.
Crane, A., & Matten, D. (2010). Business Ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University
Press.
Rasche, A., De Bakker, F. G., & Moon, J. (2013). Complete and partial organizing for corporate social responsibility. Journal of Business Ethics,
115(4), 651-663.

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CSR management instruments:
Example: L‘Oréal Code of Ethics

L'Oréal's Code of Ethics is the reference document, that guides action, inspires choices and brings the Group's ethical
principles into the daily professional life of every employee. It applies to all employees of the L'Oréal Group and its subsidiaries
worldwide. It also applies to all Officers and Directors of the L'Oréal Group and its subsidiaries. Each employee has access
to the digital version of the Code or receives a printed copy when joining the Group.

First issued in 2000, the Code of Ethics was updated in 2007, 2014 and in 2023.

Over three hundred employees and executives have contributed to the elaboration of the new edition of the Code of
Ethics.

The Code was subject to validation, including cultural validation, by Country Managers, Country Human Resources Managers,
Ethics Correspondents, Finance Directors. To underline the importance of this document, L'Oréal's Charmain and Chief
Executive Officer and L'Oréal's Senior VP, Chief Ethics Officer signed the foreword, and the introduction is signed by the entire
Executive Committee.

The Code of Ethics sets out the rules of good conduct that
are expected from L'Oréal employees. It is available in several languages.

https://www.loreal.com/-/media/project/loreal/brand-sites/corp/master/lcorp/2-
group/governance-and-ethics/ethics-rework/code-of-ethics-
2023/codeofethicseng.pdf?rev=765a100d8f904e0bbcf015ba95c1bdbe

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 CSR management instruments:
CSR managers and committees

• CSR managers are specific individuals or groups appointed to coordinate and/or take responsibility for managing
ethics/CSR/sustainability in their organization.
• Many companies also have an ethics committee, which oversees many aspects of CSR management.
• CSR managers are critical change agents – but their role needs to be recognized and strengthened if firms want to
become leaders in sustainability.
• It often falls on the CSR manager to nudge other middle-managers — in marketing, procurement, production, and sales —
to think about sustainability and participate in new initiatives.
• Interviews with 54 CSR managers in German multinational companies reveals four tactics the managers found to be
most effective at mobilizing others:
1. Build a network of internal allies; get support from senior management to
develop pilot projects.
2. Make sustainability resonate; explain what sustainability means for the
company but also for specific people and specific jobs.
3. Use the right language and incentives for the right audiences.
4. Use external and internal benchmarking.

Crane, A., & Matten, D. (2010). Business Ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press.
Wickert, C. and de Bakker, F.G.A. (2019) How CSR Managers Can Inspire Other Leaders to Act on Sustainability. Harvard Business Review,
available: https://hbr.org/2019/01/how-csr-managers-can-inspire-other-leaders-to-act-on-sustainability

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 CSR management instruments:
Risk analysis and management

• Managing and reducing risk is

an important component of CSR
/ sustainability management.
• Identifying areas of risk,
assessing the likelihood and
scale of risks, and putting in
place measures to mitigate or
prevent such risks from harming
the business.
• Relevant risks from the
perspective of CSR /
sustainability include: pollution,
product liability, human rights,
corruption, climate change
impacts, …

Crane, A., & Matten, D. (2010). Business Ethics: Managing corporate

citizenship and sustainability in the age of globalization. Oxford University With new sustainability reporting
Press.
developments, this instrument has
even higher importance than
before. More details in Session 3.

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CSR management instruments:
Reporting/whistleblowing channels

Goals:
• Gathering information on ethical matters.
• Providing employees with appropriate tools for reporting or receiving advice regarding ethical dilemmas.
• Help to tackle problems before they become public.

Crane, A., & Matten, D. (2010). Business Ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press.
https://www.walmartethics.com/ReportAConcern.aspx

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CSR management instruments:
Ethics education and training

Goals:
• Identifying situations where ethical decision-making is involved.
• Understanding the culture and values of the organization.
• Evaluating the ethical impact of managerial decisions.

Gamification: some companies have developed innovative approaches, as, e.g., the gamified „Ethics Adventure“

Crane, A., & Matten, D. (2010). Business Ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press.

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Time for Discussion!

In your group, draft a high-level sustainability

strategy and be prepared to share your results
during the group presentations.
• Based on the information available on the
homepage of the company you’re assigned to
and the materiality analysis you conducted,
what could be a fitting sustainability / CSR
strategy for the company?
• What could be matching targets for your
proposed strategy? Optional: Consider
transition pathways of the industry to define
your targets.
• How do these targets connect to the SDGs?

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THANK YOU
VERY MUCH!

MICHAEL.VERBUECHELN@VALUE-BALANCING.COM