Transcending Incrementalism: From ESG to System Value Creation

Introduction

In 2022, celebrating the 10th year of r3.0’s existence, we are embarking on a five-legged campaign to help overcome ESG-based incrementalism and achieve more awareness and clarity for the implementation needs and methods to arrive at System Value Creation. Please find a short explanation, an overview and more information on all 5 parts of the campaign below. Feel invited to let us know where you’d like to take part in and/or help financially. We are listing sponsors as they come in in the different parts of the campaign. This r3.0 campaign will also become a core feature of r3.0’s forthcoming 10th anniversary conference on September 6/7 (either hybrid or virtual, still t.b.d.) Please reach out directly to Ralph or Bill for more information.

Brendan LeBlanc, EY / r3.0 Steering Board 2015-2020

“The only thing more dangerous than no progress is the illusion of progress.”

ESG, Sustainability & System Value

  • ESG is inherently incrementalist, focused on creating enterprise value (ie shareholder value or shared value)
  • Sustainability is normative and transformative, focused on creating system value
  • System value is generated when resource use respects the carrying capacity threholds of the multiple capitals (natural, social, human, built, financial)
  • Value accrues or is preserved (respecting thresholds) at all levels – nano (individual); micro (organizational); meso (sector / portfolio / habitat); macro (ecological, social, and economic systems); and supra (existential).

Delivering True Sustainability: 5 Campaign Components

This campaign is supported by:

(1) Scalability Leverage Vectors

  • 2022 sees the release of the United Nations Research Institute for Social Development (UNRISD) Sustainable Development Performance Indicators (SDPI) Report and the final manuals for For-Profit Enterpises (FPEs) and Social and Solidarity Economy Enterprises (SSEOEs).
  • This first-ever set of fully context-based indicators for assessing sustainability performance was developed between 2019 and 2021, based in part on existing UN indicators (UNCTAD Core Indicators).
  • UNRISD will organise events for dissemination of the UNRISD SDP Indicators (both for UN Organisations like UNCTAD; UNDP; UNEPFI; UNGC; UNPRI; etc… and more broadly)
  • r3.0 will lead a scaling campaign for strategic partners, including e.g.
    • Holistic Reporting Framework for Indicator Integration
    • Horizontal Scaling, e.g. Biodiversity Indicator(s); Racial Equity Indicator(s); MultilateralDevelopment Bank (MDB) Indicators; Municipality Indicators; SSEOE Indicators
    • Reporting Standards & Frameworks, e.g. Impact Management Platform; Taskforce on Inequality-related Financial Disclosure (TIFD)
    • Investment Strategies, e.g. Shareholder Commons
    • Business Model Design, e.g. Flourishing Business Model Canvas
    • Ratings, Rankings & Benchmarking, e.g. World Benchmarking Alliance (WBA)
    • Data Platforms, e.g. THRIVE Platform; WikiRate
    • Software Solutions, e.g. Datamaran, iPoint
    • Accounting Standards / Frameworks, e.g. Audencia Business School; Big 4 / WEF; Reward Value
    • Stock Exchange Listing Requirements, e.g. UN Sustainable Stock Exchange (SSE) Initiative
    • Public Policy (Legislation / Regulation), e.g. Preventable Surprises

This activity is supported by:

(2) Global Thresholds & Allocations Network Formation 

  • r3.0 worked on an approach for a Global Thresholds and Allocations Council (GTAC) for several years, including a concise Feasibility Study (2019) and the idea to form a Global Thresholds & Allocations Network (GTAN) as a pre-step (2021). r3.0 now received funding by One Project to work on the formation of the GTAN in 2022.
  • The Project’s starting point is the existence and emergence of a number of initiatives that address thresholds, some of which take the further step of allocating these thresholds to sub-system (enterprise, portfolio, regional) levels. These initiatives currently operate in isolation from – or even in competition with – one another. The goal of the initiative is to create active collaboration, by clearly defining a pre-competitive space – a “Commons,” – for recognizing that all these initiatives are essentially “common goods” focused on governing what Elenor Ostrom calls “common pool resources.”
  • r3.0 currently fosters strong relationships with most organizations and initiatives operating in the thresholds-and-allocations space, so the next step is to co-create community to advance field-building efforts. To do so, r3.0 will employ Prosocial tools, which are built on the Core Design Principles (CDPs) that emerged from Ostrom’s 2009 Economics Nobel Prize-winning work on Governing the Commons, as well as the evolutionary biology concept of multilevel selection, which finds that groups of collaborators outperform groups of competitors, from an evolutionary perspective.

This activity is supported by:

(3) Impact Management Platform Standard Setters Advocacy

  • The Impact Management Platform, deriving from the earlier Integrated Management Project and its Structured Network, is a collaboration between leading providers of public good standards and guidance for managing sustainability impacts. Through the Platform, partnering organisations aspire to: clarify the meaning and practice of impact management; work towards interoperability and fill gaps as needed; and have coordinated dialogue, as appropriate, with policymakers.
  • At its launch, IMP unveiled a new website with a landing page devoted to thresholds & allocations (Ts & As), and it also integrated Ts & As throughout the website, including the graphical video.
  • r3.0 is seeking a mechanism for scaling out the further implementation of thresholds and allocations throughout the members of IMP (and beyond), also looking into their contribution to GTAN, but also further awareness and educational aspects.
  • Particular deepening is from r3.0‘s view necessary on some of the principles that need to be clarified in light of thresholds and allocation, especially towards Impact Valuation and Monetization. In particular, aspects such as how to adress commensurability, the non- substitutability / non-fungability of capital-related impacts need clarity.
  • Lastly, we are interested in the overall impact of the Platform as an “authoritative basis“ for the integration of Context-Based Sustainability disclosure towards members and towards e.g. IFRS and the newly created ISSB as well as the European CSRD.

This activity is supported by:

(4) Enhanced Governance Mechanisms

  • r3.0 sees merit and need to closer examine and address governance problems at standards setters, especially around disputes in opinion with affected stakeholders.
  • We have seen missing pieces in the governance of especially the Science-Based Targets initiative (SBTi) and the Global Reporting Initiative (GRI) and will use these two cases to proactively engage, with the intent to salvage them.
  • An existing case with SBTI that r3.0 Senior Director Bill Baue, an ex-member of the SBTi Technical Advisory Group, has started, has not been properly addressed and solved for about a year now, and serves as a pattern for what‘s wrong: the missing of an Ombuds function, a proper Complaint Mechanism, including a Complaint Resolution Due Process.
  • A second case at GRI serves to address a willing misreading of public comments, leading to the neglect of the advise of 19 experts around the GRI Sustainability Context Principle, watered down in the recently published Universal Principles of GRI. Sustainability Context has literally lost the sustainability context by scrapping performance measurement and consciously refusting to provide guidance on how to implement thresholds and allocations.
  • Both examples serve as a greater pattern of non-accountability of major standard- setters. It is not incidential, but a systemic problem. R3.0 will aim to work  constructively, but may escalate complaints where needed.

This activity is supported by:

(5) Transcending ESG

  • 2021 has seen a myriad of similar messages through articles, interviews and reports, clearly addressing the shortcomings of ESG, leading to “predatory delay” and even “deadly procrastination.” The work of EFRAG/GRI for the EU and the ISSB for the IFRS is too important to be left to just ESG protagonists as the “experts.” “ESG does not, by nature, carry a true sustainability gene,” as GRI Co- Founder Allen White remarked.
  • r3.0 aims at bringing together a critical mass of critics of ESG incrementalism in a set of organized discussions that helps to map conceptual categories and define joint language that can be addressed to the many players and constituents of the ESG landscape. The existence of such a group alone sends signals.
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  • Furthermore, the discussions will help to define commonalities and areas of necessary change that are essential, and will produce collateral for postings, eventually a joint campaign.
  • This discussion will also feed into all other coponents of this overall campaigning for True Sustainability. 2022 will be an important year to distinguish between insufficient ESG incrementalism and necessary true sustainability.

This activity is supported by:

Dedication

  • September 2022 marks the ten-year anniversary of r3.0 (Redesign for Resilience and Regeneration). r3.0 wants to make 2022 a tipping point year in which the logic of true sustainability tips over the incrementalistic ESG mindset. The #ESGLaLaLand hashtag coined that illusion of progress.
  • r3.0 wants to dedicate this campaign to its former Steering Board Member Brendan LeBlanc, who passed away in late 2020, and would have said: “This is why I love r3.0!“ We took great pride in Brendan‘s support for r3.0 and think this campaign would have been “up his alley“.

Background Materials

Contacts

Bill Baue

Senior Director

r3.0

+1 413 387 58 24

Ralph Thurm

Managing Director

OnCommons / r3.0

+31 64 600 14 52

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