In this week’s Principle 6 newsletter, sustainability as strategic advantage

Image show many hands coming together, each holding a different piece of a puzzle.
Cooperatives are hard-wired for sustainability. 

As corporations scramble to fulfill Corporate Social Responsibility promises to their employees, customers, communities and the environment—not just shareholders— Mike Mercer sees an opportunity for cooperatives.

“While corporate America makes disingenuous pledges to part from singular focus on shareholder returns,” cooperatives could “build a long-term strategic advantage on the framework of sustainability,” he writes.

Read the full newsletter below, then consider how cooperatives can work together to pool their sustainability efforts. NCBA CLUSA is on a mission to document Principle 6 collaborations across the country so we can identify trends, document best practices and share this knowledge with you—our fellow cooperators!

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Principle 6 Newsletter – Sustainability as Strategic Advantage

August 24, 2022

Corporate Social Responsibility (CSR) refers to the business policy of making positive contributions to social causes. These could include the environment, the community, the wider economy, the health and wellbeing of staff or any other similar topic.

ESG stands for Environmental, Social and Corporate Governance. These three broad areas can provide a range of targets for a business to meet in order to improve its sustainability and lower its risk level across various factors. They include aspects like inclusion and diversity, climate change, human rights and more. 

The UN has defined 17 Sustainable Development Goals(SDGs) that it believes will provide a better future for the world’s population and which it wants to achieve by 2030. These include:

  • Gender Equality
  • Clean Water and Sanitation
  • Affordable and Clean Energy
  • Sustainable Cities and Communities
  • Responsible Consumption and Production
  • Climate Action

– “CSR, ESG and SDGs…,” BoardClic website, 8-15-22

ESG investing is sometimes referred to as sustainable investing, responsible investing, impact investing, or socially responsible investing (SRI). To assess a company based on ESG criteria, investors look at a broad range of behaviors and policies. – Environmental, Social, and Governance (ESG) Criteria,” The Investopedia Team, Investopedia, 5-28-22

Tighter regulatory oversight of ESG is coming, especially in Europe. In America the Securities and Exchange Commission is hoping to beef up oversight of climate disclosures (though a recent Supreme Court ruling may constrain it). The hope is that greater supervisory pressure will eventually help capital markets to “internalize externalities” – i.e. to reward companies for reducing their carbon footprints through higher asset prices and a lower cost of capital. – “Special Report: ESG Investing,” The Economist, 7-23-22


Think of it this way. CSR is a pledge on the part of corporations to admit that they impact employees, customers, communities, and the environment with their activities—and promise to do better. Some of the pledges are highly public demonstrations such as the Business Roundtable’s 2019 CEO pledge, for example. ESG is a more specific commitment built around three pillars (environment, social and governance). It comes with attempts to keep score, most notably by outside investors who ask their brokers to put their money to work in “good” ESG companies. The brokerage companies and fund managers are happy to oblige, usually for higher fees. Notwithstanding, ESG comes with more teeth than CSR. Finally, SDGs arrived on the scene under the auspices of the United Nations. They outline the playing field for development of international regulations. The EU has obliged by promulgating the Sustainable Finance Disclosure Regulation and the Non-Financial Reporting Directive.

The upshot—things are starting to get real. A not-so-cottage industry has developed to help companies and investors with measurement tools for reporting on ESG performance. The Economist contends that there are north of 150 ESG consulting firms offering to help with education, measurement and tracking. Just one of these outfits, Berkeley Law, illustrates the nature of their offers. And standards are starting to emerge for comparable measurements, including the Global Reporting Initiative (GRI) and the Task Force on Climate-related Financial Disclosures (TCFD). Morningstar provides ESG ratings on more than 14,000 companies worldwide. The large companies know that poor ESG ratings can affect their cost of capital.

Governments in developed countries are not inclined to leave sustainable development to the private sector. It is generally accepted that free market capitalism will not solve the issues of climate or environment soon enough, if at all. The SEC, now satirically called the Securities and Environment Commission by some, has issued a 490-page regulation that will attempt to standardize climate related disclosures. The EU goes beyond investor disclosures to measuring a company’s impact on people and the environment directly. Despite the movement toward more regulation and private initiatives to quantify ESG scores, we are some distance in time from widely accepted standards for sustainable economic behavior. In the meantime, return on investment and attention to the ballot box reign supreme.

At this point, you might be thinking OK, that was informative…but what does that have to do with my co-op, with my role as a co-op leader?

Well, if you’re the largest U.S. co-op (by revenue), CHS, you publish a sustainability report, the contents of which genuinely inform strategic decision-making at the highest levels. Meanwhile, REI has developed an Impact Report. And CUNA Mutual Group speaks directly and tangibly to sustainability on its website. In many other ways, the nation’s largest co-ops and their support organizations are already well down the road of paying genuine homage to sustainable development. If fact, most were doing the work of sustainable development before it was cool. Recent attention has been focused on refined articulation of what co-ops are already wired up to do. CSR, ESG and SDGs are not new concepts at the very large co-ops. They already source capital from ESG sensitized investors and know that they will be directly influenced by government regulation as it materializes.

What should the other, mostly smaller co-ops be doing? It’s unlikely that many co-ops have a role in deforestation, child labor abuse or bribery/corruption—all areas of mention under the lists of ESG issues. And the carbon footprint of most co-ops will not alter the course of climate change. Morningstar is unlikely to establish ESG scores for most co-ops in the foreseeable future and the prudential regulators for co-ops aren’t considering ESG compliance to be a high-risk exposure. Notwithstanding, it is probably time to start learning more about the key elements of ESG. If nothing else, members will come to expect responsible attention to sustainability.

So, three broad areas:

Environment Currently getting the most “heated” attention around the world. Every time part of California burns up or the rivers Po and Rhine dry up, the cries for doing something about global warming ratchet up. The major issue seems to be around greenhouse gas emissions. But there are also issues of resource depletion, waste, pollution, water conservancy and others. The rural electric cooperatives are center stage with energy efficiency, carbon emissions and renewable sources. Ag co-ops already help farmers with water, soil depletion, fertilizer and energy, to name a few. Credit unions can (some do) finance energy efficiency improvements. Food co-ops contend with waste and spoilage. It would be good to develop cross-sector data… to learn from other co-ops.

Social Things like working conditions, equal opportunity, human rights, employee diversity, wealth disparity, health, safety, community engagement and philanthropy fall under this part of the ESG canopy. Co-ops can excel in many parts of the social spectrum. Worker co-ops are a direct organizational response to working conditions and wealth disparity. Social co-ops address health and human rights. All co-ops are attuned to employee (and leadership) diversity. Many are constructively moving forward with diversity and equality as part of their core fabric. Community engagement is another area deserving (and getting) more attention from co-ops.

Governance Likely the least appreciated and definitely the most subjected to wide interpretation, governance is a growing focus for corporate America. Business ethics, executive compensation, board and C-suite diversity, and political influence are among the governance elements increasingly in the news and amplified in social media. Co-ops have structural advantage in all matters related to governance. Democratic ownership and co-op values/principles combine to give co-ops all the license they need to excel at inclusive and fair governance practices. But there is still considerable work to be done. Claiming cooperative identity and living it are two different things. Co-ops should own this corner of sustainable behavior expectations. In fact, co-ops are specifically named as sustainability-friendly organizations in the EU’s Social Economy Action Plan. U.S. co-ops cannot count on the federal government to sing worthy praises or embed co-ops in official policy for achieving more sustainable economic practices. Certainly not in the foreseeable future.

Together, co-ops could assemble a co-op “ESG score” that would impress. Especially since much good work is already being done. Recognition will not come from outside. As usual, respect and appreciation for co-op sustainability efforts will have to be cultivated from within—embraced by co-op leaders and amplified by their associations. Maximum impact could be obtained by aggregating the co-op ESG stories across all sectors. With collaborative influence, co-ops could be embraced in environment-friendly initiatives by municipal and state governments.

Perhaps co-ops could even build long-term strategic advantage on the framework of sustainability while corporate America makes disingenuous pledges to part from singular focus on shareholder returns.

Stay tuned,


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