Sustainability Context Principle

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Discussion

Bill Baue and Ralph Thurm:

“Knowing Dr. White for more than three decades collectively, we believe it’s safe to say that a defining characteristic of Dr. White’s work is humble understatement. Such is the case, we believe, with three of his assertions in this essay — namely:

  • “the concepts of boundaries, limits, and norms”;
  • “systems-based reporting”; and
  • “systems-based strategies” for investors.


These three intertwining elements of Dr. White’s important essay warrant further fleshing out. Of course, Dr. White was instrumental in introducing the notion of “boundaries, limits, and norms” to the CSR space as the primary champion of the Sustainability Context Principle that first appeared in the second generation of Sustainability Reporting Guidelines from the Global Reporting Initiative in 2002. At its core, the Principle holds that sustainability reporting draws significant meaning from the larger context of how performance at the organisational level affects economic, environmental, and social capital formation and depletion at a local, regional, or global level… [R]eporting organisations should consider their individual performance in the … context of the limits and demands placed on economic, environmental, or social resources at a macro-level.

In asserting this micro-macro link between organizational performance and systems level resources, the Sustainability Context Principle introduces normativity into the otherwise incrementalist regime of its Guidelines. In other words, the lion’s share of the GRI Guidelines call for simply documenting impact (and incremental improvements in the right direction), whereas SustyContext (as it’s nicknamed) calls for assessing if those impacts are, in fact sustainable.

It is perhaps unsurprising that the corporate world has overwhelmingly neglected to apply the SustyContext Principle(and GRI has quietly tolerated it, for reasons that are confounding to say the least.) A 2017 study of 40,000 CSR reports (from 2000–2013) found that only 5% even mention ecological limits, while a miniscule 0.258% apply these limits to product development and corporate strategy.

Implementing the Sustainability Context Principle in earnest would enact what Dr. White refers to as “systems-based reporting.” This practice holds significant promise, as it would reveal the need for significant transformation at the organizational and systemic level. At the same time, implementing such a regime would require a profound transformation of mindset and paradigm, from one that abides (and even celebrates) incrementalism, to one that both recognizes and enacts transformation to sustainable impact within sustainable ecological, social, and economic systems. As we at r3.0 say, there can be no sustainable companies in an unsustainable society and economy.

Likewise, “systems-based investing” would similarly apply sustainability thresholds to portfolios across all asset classes. In essence, such an approach would apply such thresholds on all holdings, and aggregate them to the portfolio level. This is a concept one of us introduced in 2013 (along with Mark McElroy and Cary Krosinsky) as “threshold investing,” which has begun to reemerge and pick up steam with recent mention in Keith Ambachtsheer’s prominent monthly letter. Threshold investing plays a significant role in the upcoming Sustainable Finance Blueprint that r3.0 is producing, in conjunction with a Working Group of about 40 experts globally, for release in Fall 2020.” (https://medium.com/@r3dot0/the-need-for-corporate-transformation-in-an-era-of-system-change-885dc5343d4b)