Ethics, Responsibility, and Sustainability (HMA64A)
Institution
Katholieke Universiteit Leuven (KU Leuven)
This is a personal summary from the course 'Ethics, Responsibility and Sustainability', given by Prof. Carlos Desmet. It encompasses the content seen during the classes and powerpoints, videos, additional readings & cases and my personal notes. It is easy to study from.
Ethics, Responsibility, and Sustainability (HMA64A)
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1 Practical Information ............................................................................................................................... 5
1.1 Table of Contents..................................................................................................................................... 5
2 Emergence of a Common Language ......................................................................................................... 6
2.1 The Limits to Growth - 1972 .................................................................................................................... 7
2.2 Our Common Future – The Brundtland report - 1987.............................................................................. 8
2.3 Cannibals with Forks – Triple Bottom Line – 1997 ................................................................................. 10
2.3.1 The Global Reporting Initiative – GRI – 1997 ................................................................................ 10
2.3.2 The Dow Jones Sustainability Indexes – 1999 ............................................................................... 10
2.4 Porter – Creating Shared Value – 2006 ................................................................................................. 11
3 Planet Boundaries & Sustainable Development Goals (Sdg) – 2015 ....................................................... 11
3.1 Planet Boundaries ................................................................................................................................. 11
3.2 Sustainable Development Goals (Sdg) ................................................................................................... 12
3.3 What does it mean for the private sector? ............................................................................................ 13
3.3.1 SDG Barometer Belgium 2022 ....................................................................................................... 13
A Key Findings of the 2022 Barometer ................................................................................................. 14
B What do we learn from the Belgian barometer? .............................................................................. 14
4 Where are we heading?......................................................................................................................... 15
4.1 A renewed pledge to support the SDG? ................................................................................................. 15
4.2 Global Sustainable Development Report 2023 ...................................................................................... 15
1 From CSR Management to Stakeholder Theory ..................................................................................... 16
1.1 2 Models of CSR ..................................................................................................................................... 16
1.1.1 Pyramid Model of CSR – Carroll (1991) ......................................................................................... 16
1.1.2 Three-Domain Model of CSR – Schwartz & Carroll (2003) ............................................................ 16
1.2 Stakeholder Theory................................................................................................................................ 17
1.2.1 Video: What is the stakeholder theory? - R. Edward Freeman ..................................................... 17
A Challenges of stakeholder theory...................................................................................................... 18
1.2.2 From Theory to Adoption .............................................................................................................. 18
1.2.3 International business issues - The Power of the Consumer......................................................... 19
A Case 1: The Brent Spar Disposal ........................................................................................................ 19
1.3 The Moral Aspect of Stakeholder Theory .............................................................................................. 21
2 The Stakeholder Framework.................................................................................................................. 21
2.1 The Rational / Analytical Level: Stakeholder Maps ............................................................................... 21
2.2 The Transactional Level: Interacting with Stakeholders ........................................................................ 22
2.2.1 The stakeholder philosophy: A plea for voluntarism..................................................................... 22
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,MBA ’23-’24 Prof. Carlos Desmet
2.3 Who and What really counts? ............................................................................................................... 22
2.3.1 Theory of Stakeholder Identification ............................................................................................. 22
2.3.2 Theory of Stakeholder salience: Stakeholder Classes ................................................................... 23
2.3.3 Stakeholder Mapping / Matrix ...................................................................................................... 23
A Case 1: Integrated Report Elia ........................................................................................................... 24
B Case 2: Porgera Gold Mine ................................................................................................................ 24
C Case 3: The Ethiopian Textile & Apparel Sector ................................................................................ 25
3 Additional Readings .............................................................................................................................. 26
3.1 Solvay 2022 Annual Integrated Report.................................................................................................. 26
3.2 Umicore 2022 Integrated Annual Report .............................................................................................. 26
3.3 ENG Report to the Society 2022 - VUB .................................................................................................. 26
SUSTAINABLE SUPPLY CHAINS & HUMAN RIGHTS ......................................................................................... 27
1 Supply chain and procurement .............................................................................................................. 27
1.1 Sustainability and procurement ............................................................................................................ 27
1.1.1 Examples: identify three examples & impact ................................................................................ 28
3 From LCA to LCSA .................................................................................................................................. 29
3.1.1 Case study: Electric cars (BEV) are better for climate and air quality ........................................... 29
A Mining of raw material ...................................................................................................................... 29
B Production ......................................................................................................................................... 30
C Use stage ........................................................................................................................................... 30
D End of life stage ................................................................................................................................. 31
E Summary of findings.......................................................................................................................... 31
4 A Risk management perspective ............................................................................................................ 32
4.1 Sustainability rating .............................................................................................................................. 32
4.1.1 Additional opportunities from considering sustainable performance .......................................... 32
4.1.2 Challenges of integrating a sustainable approach......................................................................... 32
4.1.3 How to assess? Which criteria? ..................................................................................................... 32
4.1.4 How to collect data?...................................................................................................................... 33
A Third party vendors ........................................................................................................................... 33
5 Supplier code of conduct ....................................................................................................................... 33
5.1 Contract performance management ..................................................................................................... 33
5.2 Managing contracts termination – challenges ...................................................................................... 34
A Exercise: Supplier Code of Conduct – EY – Nike – Apple ................................................................... 34
BUSINESS AND HUMAN RIGHTS .................................................................................................................... 36
1 Baseline For Business & Human Rights .................................................................................................. 36
1.1 Laws, soft laws, codes of conduct,......................................................................................................... 36
1.2 Core labour rights .................................................................................................................................. 36
2 Business & Human Rights Framework ................................................................................................... 37
2.1 Ruggie’s Framework // Protect-Respect-Remedy Framework .............................................................. 37
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,MBA ’23-’24 Prof. Carlos Desmet
2.1.1 Pillar 1: State duty to protect ........................................................................................................ 37
2.1.2 Pillar 2: Corporate responsibility to respect .................................................................................. 38
A Major Role for the Business .............................................................................................................. 38
2.1.3 Pillar 3: access to Effective remedy ............................................................................................... 39
2.2 Human Rights Due Diligence ................................................................................................................. 39
2.2.1 4 Components of Due Diligence .................................................................................................... 39
2.2.2 The concept of human rights due diligence in business ................................................................ 39
2.2.3 UN Guiding Principles (UNGPs) on Business and Human Rights ................................................... 40
2.3 Grievance Mechanisms.......................................................................................................................... 40
2.3.1 Company-Level Grievance Mechanisms ........................................................................................ 40
3 European Corporate Sustainability due diligence ................................................................................... 41
4 Case Studies .......................................................................................................................................... 42
4.1 Case 1: Fatal Fire in Bangladesh ............................................................................................................ 42
4.1.1 Background.................................................................................................................................... 42
4.1.2 Who is accountable? ..................................................................................................................... 42
4.1.3 Safety Actions? .............................................................................................................................. 42
4.1.4 Responsibility of Consumers? ....................................................................................................... 43
4.2 Case 2: Plastic recycling in Turkey ......................................................................................................... 43
4.2.1 Background.................................................................................................................................... 43
4.2.2 Local Issues .................................................................................................................................... 43
4.2.3 Questions ...................................................................................................................................... 44
5 Additional Readings .............................................................................................................................. 46
5.1 European Parliamentary Research Service (EPRS) - Briefing ................................................................. 46
5.1.1 Short Summary .............................................................................................................................. 46
5.2 Eu Corporate Sustainability Due Diligence Directive – CSDDD .............................................................. 46
5.2.1 Short Summary .............................................................................................................................. 46
5.2.2 Companies Covered under the Directive....................................................................................... 46
5.2.3 General Obligations of companies ................................................................................................ 47
1 Sustainable Finance ............................................................................................................................... 48
1.1 ESG Rating ............................................................................................................................................. 48
1.1.1 Long Term Value Cration – LTVC ................................................................................................... 48
1.2 United Nations – Principles for Responsible Investment ....................................................................... 48
1.3 Investment strategy .............................................................................................................................. 49
1.3.1 Building a portfolio ........................................................................................................................ 49
1.3.2 improving investee’s performance................................................................................................ 49
1.4 Sustainability considerations ................................................................................................................. 50
1.4.1 Becoming Mainstream Finance ..................................................................................................... 50
1.4.2 Which investment strategies are most popular? .......................................................................... 50
2 ESG investing - Can The Market Solve Societal Challenges? ................................................................... 51
2.1 ESG ratings & how to include scores? ................................................................................................... 52
2.1.1 Exclusion list .................................................................................................................................. 52
2.1.2 Positive Screening ......................................................................................................................... 52
A Case Example: Exclusion Policies ....................................................................................................... 53
2.2 European Comission plan ...................................................................................................................... 54
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,MBA ’23-’24 Prof. Carlos Desmet
3 Emerging Standards .............................................................................................................................. 54
3.1 EU Taxonomy......................................................................................................................................... 54
3.1.1 EU Taxonomy Compass ................................................................................................................. 55
A Why does Europe need a Taxonomy? ............................................................................................... 55
B Taxonomy set 6 objectives ................................................................................................................ 56
C 4 conditions ....................................................................................................................................... 56
D Disclosures Obligations ..................................................................................................................... 56
3.2 From NFRD to CSRD ............................................................................................................................... 57
3.2.1 What obligations apply ? ............................................................................................................... 57
3.2.2 CSRD and ESRS............................................................................................................................... 58
5 Green Bond Market ............................................................................................................................... 59
5.1 European Green Bonds Standards ......................................................................................................... 59
5.1.1 Case : Belgian Green Bonds ........................................................................................................... 60
A Reporting ........................................................................................................................................... 60
5.1.2 Case: Impact Report Belgian Green Bonds .................................................................................... 60
6 ESG labels landscape in Europe ............................................................................................................. 61
6.1.1 Case: Belgian Label Towards Sustainability ................................................................................... 62
6.2 Coalitions and Networks........................................................................................................................ 62
1 Slides..................................................................................................................................................... 63
1.1 Example Questions ................................................................................................................................ 63
1.1.1 Question 1 ..................................................................................................................................... 63
A Correction.......................................................................................................................................... 63
1.1.2 Question 2 ..................................................................................................................................... 64
A Correction.......................................................................................................................................... 64
1.1.3 Appendix 1: NYU Stern university report – report April 2023 ....................................................... 66
2 Extra notes ............................................................................................................................................ 67
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,MBA ’23-’24 Prof. Carlos Desmet
INTRODUCTION
1 PRACTICAL INFORMATION
Learning Objectives
• Discuss the social, ethical and sustainability aspects of management, analyse a policy on the basis of
these aspects and formulate suggestions for improvement.
• Understanding of the emerging regulatory framework in Europe
• Expectation from the private sector to be able to include those considerations in economic thinking
• The student needs to be critical and not afraid to question himself/herself and his/her environment.
Evaluation
Written exam – Open questions
Mock exam in May
1.1 TABLE OF CONTENTS
1. Introduction: why is the topic so important?
2. Corporate Responsibility and Stakeholder management: theories, practical applications, and
emerging regulatory frameworks
3. Supplier, Competitors and Business Ethics: with a specific focus on Human rights management in
global supply chain, challenges and opportunities
4. ESG and Finance: a path to Sustainability, how can Finance help for the transition to a more
sustainable world?
5. Sustainability reporting: new regulations, the opportunity for students in economy to develop robust
reporting of non-financial data.
è Importance of the articles and cases!
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,MBA ’23-’24 Prof. Carlos Desmet
SUSTAINABILITY JOURNEY
Is it time to embed ‘sustainability’ in management?
• Acceleration of the global awareness
• We observe stress on the planet
• It is time to move from concepts to action
• It is a fairly new field
1. It evolves fast and has impact in Finance, Marketing, Governance, Innovation, HR
ð Impact in General Management.
1 TERMINOLOGY
Corporate Social Responsibility (CSR)
• Most longstanding concept: based upon Carroll’s pyramid model
• Reflects Anglo-American business model
• Inclusion of broader set of responsibilities e.g. environment
Business Ethics
• Umbrella label for CSR: rooted in philosophy
• Concerned with the morality of business practices
• CSR is oriented towards the wider role of the corporation in the global economy
Sustainability
• Originating from forestry and environmental management
• Refers to broader set of social, economic and environmental imperatives
• Political interest in sustainable development: reflects ‘Contemporary CSR’
Corporate Citizenship
• Developed in 1990s to evoke notion of corporation as a ‘good neighbour’
• Reveals changing nature of role of business in society: political governance
• Young, but one of the most dynamic debates in CSR literature
2 EMERGENCE OF A COMMON LANGUAGE
• The Sustainable Development Goals from UN
(Since 2015)
• A common objective for the world: 2030
• A glue across public sector – non profit
organizations and the private sector
• A common language for all
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,MBA ’23-’24 Prof. Carlos Desmet
2.1 THE LIMITS TO GROWTH - 1972
• Book released in 1972
• Created an international sensation
• Commissioned by the ‘Club of Rome’
= international group of businessmen, statesmen, and scientists
• Compiled by a team of experts from the U.S. and several foreign countries
• Using system dynamics theory and a computer model called “World3”
• Presented and analyzed 12 scenarios that showed different possible
patterns—and environmental outcomes—of world development over two
centuries from 1900 to 2100.
o The World3 scenarios showed how population growth and natural
resource use interacted to impose limits to industrial growth, a novel
and even controversial idea at the time.
o In 1972, however, the world’s population and economy were still
comfortably within the planet’s carrying capacity.
Criticisms on the model “World3”:
• It underestimated the power of technology
• Did not represent adequately the adaptive resilience of the free market
• Impressive & sufficient technological advance is possible
o But only because of determined societal decisions & willingness to follow up such decisions
with action and €
è The model does include the importance of the markets & technology
o Technical improvements are i.a.:
§ Birth control
§ Resource substitution
§ Green revolution in agriculture
However:
Even with the most effective technologies and the greatest economic resilience that seems possible, if those
are the only changes, the model tends to generate scenarios of collapse.
Because:
1. Technology and markets are merely tools to serve goals of society as a whole
o If society’s implicit goals are to:
- exploit nature
- enrich the elites
- ignore the long term
2. Then society will develop technologies and markets that destroy the environment, widen the gap
between rich and poor, and optimize for short-term gain.
ð Society develops technologies & markets that accelerate a collapse instead of preventing it.
2. The costs of technology and the market are reckoned in resources, energy, money, labor, and capital.
(= Adjustment mechanisms have costs)
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,MBA ’23-’24 Prof. Carlos Desmet
Based on 5 variables that limit growth on this planet:
This graph shows the number of ‘Earths’ required to provide
the resources that are used by humanity, in order to absorb
the emissions produced.
The human demand is compared with the availability of 1
planet Earth.
è From 1980 onward:
Human demand > nature’s supply
è Unsustainable use of resources
2.2 OUR COMMON FUTURE – THE BRUNDTLAND REPORT - 1987
The report highlighted 3 fundamental components to sustainable development:
1. Environmental protection
2. Economic growth and
3. Social equity
The concept of sustainable development:
- Emphasized on finding strategies to promote economic and social advancement in
ways that avoid environmental degradation, over-exploitation or pollution.
- Sidelined less productive debates about whether to prioritize development or the environment.
Challenges according to Brundtland:
• Development is fundamentally “social development”:
The health, wealth and education of a community or society. Economic development fosters social
development both directly, by creating wealth, and indirectly, by contributing to health and education.
• Sustainable development is a particular type of social development that operates within the planet’s
environmental limits or carrying capacity. It’s vital to know both an area’s carrying capacity and the
impacts of human activities.
• Development has to be sustainable at different scales: local, national, regional and global.
o What is sustainable also depends on the context: a location’s ecological, economic, social and
institutional qualities.
o (As the Brundtland report says, there is no single blueprint for sustainability.)
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, MBA ’23-’24 Prof. Carlos Desmet
Suggested appropriate action – In relation to Business:
• Business matters
o Economic and social development are intrinsically connected.
o The role of business is to find ways to create wealth — to be efficient, effective and
competitive, and to meet needs — without damaging the environment beyond its carrying
capacity or natural limits.
• Focusing on firm sustainability alone isn’t sufficient
o But, firms play a very important role in systems because their production and consumption
activities affect those regions and systems.
o From a systems perspective, it’s vital to look at both the benefits business creates and the
value it destroys.
• All actors need to be engaged for lasting solutions to unfold
o Sustainability is too complex to address alone
o Companies must therefore learn how to work with new and different individuals and groups:
§ learning, innovating and changing together.
o Sometimes companies may lead, but more often they will follow.
Businesses contribute by:
• Helping to set a more sustainable vision for the future
• Sharing knowledge and insights about the present system, including its limits and potential for change
• Working on pathways** to the future: Identifying / Developing / Assessing / Implementing changes
**Pathways will involve innovative technologies, products, services, business models and ways of working.
ð Sustainable development
= the most open innovation systems imaginable
= a process of social innovation
= a multi-actor design process that provides new opportunities for those firms that can take up the
challenge of competitiveness within the framework of sustainability.
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