ESG for You and Me: Takeaways for the Coffee Industry | 25, Issue 18
Originating in the early 2000s as an acronym to capture non-financial areas connected to business performance, the term ESG—short for “environmental, social, and governance”—has become significantly more visible over time. While the term now appears in mainstream outlets more often than it did a decade ago, many people are still unclear on what it really means, how it differs from or aligns with sustainability, and its potential relevance for their own organizations.
KELLEM EMANUELE offers an ESG primer tailored for the coffee industry.
When you work in a particular space or industry for a long time, you tend to collect abbreviations to the point where it can feel a little bit like alphabet soup. Even beyond our organization’s own initialism as the SCA, the coffee industry has a slew of other non-governmental organizations, competitions, and activities referenced by three or more letters. While their use can sometimes make communication between industry actors speedier and more efficient, the resulting shorthand can feel confusing and exclusive to those who are less familiar or newer to the industry.
We are not, by any stretch, alone in relying heavily on this kind of jargon. And sometimes, as you’ll read more about in the subsequent pages, even the “insiders”[1] can’t agree on what certain abbreviations are intended to encompass, or how they should be used. At what point does the complicated use of an abbreviation obscure the very critical idea it’s meant to convey, to the point where it’s dismissed?
One of these more commonly misunderstood abbreviations is “ESG,” short for “environmental, social, and governance.” While not coffee jargon explicitly, many businesses—including coffee companies of all shapes and sizes—have recently begun to try to grapple with what it means and how it applies to them. Its decade of use has been fraught with confusion, which has since led some in the business community to question if ESG, as a framework, is a distraction.[2] Despite this, our collective need for urgent climate action only continues to grow. We would be remiss to dismiss ESG as a relevant lens through which we can understand risk or as an approach to non-financial reporting simply because of its confused use historically (or more recent misuse to greenwash). ESG is not just about telling a story of sustainable practice or even about creating solutions to large structural issues like climate change; it is a framework to outline a vision against which you can measure your progress.
I’m so grateful that Kellem Emanuele has put together this much-needed primer, “ESG for You and Me: Takeaways for the Coffee Industry.” It not only traces the history and use of this “term” ESG, but also offers insightful coffee-specific examples, a selection of critical actions businesses can take to integrate ESG and sustainability into their strategic business objectives, and a list of further reading and resources for anyone interested in learning more. I hope it clarifies a term you may have been encountering more frequently, provides valuable insight, and helps us all feel a little more “in the know” as we seek to address some of the climate-related challenges we face together.
Yannis Apostolopoulos
Chief Executive Officer, SCA
For organizations striving to understand where profitability intersects with non-financial factors, the term ESG may be just as familiar as sustainability.
Both include environmental and social aspects: climate change, equity, community engagement, ethical business practices, etc. But despite this overlap, there are differences between the two. Whether you are a large, publicly traded company or a small nonprofit, understanding ESG, its history, context, and resources can help you achieve a sustainability and ESG approach that is sized to your unique business model.
There are four steps to finding the right approach: understand what is important to your company now, in the immediate term; connect real goals to those priorities; reflect your goals throughout your culture; and finally, communicate effectively. But before digging into these recommendations, let’s look more closely at ESG, what it is, and how we’ve gotten to this point.
What is “ESG"?
Let’s keep it simple and begin by considering the term itself. Recently, Alice Kalro, Associate Director — Business Strategy & Practice Lead for Goodera, observed that ESG has increasingly been used as if it is a standalone noun, when in fact, it is an adjective to describe a noun.
Using ESG as a noun leads to bizarre definitions on providers’ websites and influencer posts, which nearly uniformly state “ESG stands for Environmental, Social, and Governance (period),” as though that carried any meaning at all. Environmental, social, and governance WHAT?
Let’s use it as the adjective that it is—that will force us to add the noun, the subject/object (…) ESG risks, ESG risk management, ESG risk reporting, ESG risk reporting instruments, ESG risk (management) ratings, ESG risk-aligned investing, a company’s ESG risk (management) report.[3]
Further unpacking the first two of the ESG categories, environmental and social, we can look at a few specific examples. One environmental risk that might be listed in an ESG report could be that severe weather events, brought on by climate change, could result in costly disruptions to shipping or agricultural productivity. Similarly, a social risk example might include discovering that a supplier maintains unethical practices such as forced labor or unsafe working conditions. Switching gears to consider investments that would be included within ESG, examples of environmental investments include wind or solar energy, and social investment examples include healthcare and education.
Turning to the third component, governance refers to a company’s policies, practices, and culture—for example, to ensure appropriate compensation and ethical business practices. Governance is noticeably different from the other two. Its inclusion with environmental and social in ESG is often debated. As concisely noted in the Stanford Business School report Seven Myths of ESG, “[w]hile [good governance practices] are required of a company that pursues ESG, they are also required of companies that place little or no emphasis on ESG.”[4]
ESG and Sustainability
In contrast with the ESG adjective, sustainability is generally understood to be a noun. Definitions range from generic, “the ability to be sustained, supported, upheld, or confirmed,” to more specific, such as, in relation to environmental science, “the quality of not being harmful to the environment or depleting natural resources, and thereby supporting long-term ecological balance.”[5]
We can also look toward early definitions, such as the one established in 1987 by the United Nations Brundtland Commission: “meeting the needs of the present without compromising the ability of future generations to meet their own needs.”[6]
Embedded within the Brundtland Commission definition is another distinction between the earlier concept of sustainability and the concept of ESG as expressed in the current dialogue among ESG practitioners: “outside-in” (ESG) vs. “inside-out” (sustainability).[7] To understand what is meant by this, let's apply simplified ESG and sustainability lenses to the same topic: climate change. From an ESG perspective (“outside-in”), we consider how the outside factors influence the business at the center of this context, so a driving question would be: what additional costs might climate change bring to our operations? However, from a sustainability perspective (“inside-out”), the business at the center considers how to positively influence the factors surrounding it. In this case, a driving question would be: how can we reduce carbon emissions related to our operations that are contributing to climate change?
ESG & Sustainability in the Coffee Industry: A Look at ESG’s “Origin Story”
In the coffee industry, we often look to origin stories to better understand a coffee or community, what makes it unique, its role and relevance for the broader industry, and opportunities for the future. This same approach can be applied to understanding ESG. One way to think of the ESG origin story is where the key actors are corporations, investors, and the public sector—especially the United Nations. At the origins of ESG, these stakeholders were working to build a bridge between parties to facilitate mutual understanding between two different worlds: the very specific, concrete world of corporate finance, risk, and investment; and the world of the interwoven social, environmental, and cultural context in which businesses and financial institutions exist.
As described in more detail in the timeline below, the origin and evolution of key players and concepts in ESG began in the late 1990s and continue today. In this story, we see public and private sector actors coming together to develop solutions, especially in response to devastating environmental events and untenable social conditions.
Takeaways for the Coffee Industry
In their 2020 research, “Sustainability Strategies by Companies in the Global Coffee Sector,”[8] Eric Lambin and Simon Bager conclude that coffee sector companies could be generally grouped into three categories in terms of their relationship to sustainability commitments: those with no commitment, those with vague commitment, and those with tangible commitments.
Among the sustainability strategies adopted, across company size and type, their research found that several sustainability issues remain under-addressed by most companies, especially climate change and deforestation. They also identified that addressing sustainability is not yet fully mainstreamed in the sector. However, “the most progressive companies are differentiating themselves through innovative sustainability practices.”
In making recommendations based on their findings, Bager and Lambin point toward a need for common coffee sustainability indicators relevant for all actors along the value chain, which are consistent with the UN Sustainable Development Goals, and a transparent, mandatory reporting framework. Their call to action also resonates with many of the challenges that organizations such as the Value Reporting Foundation to International Sustainability Standards Board are working to address (page 12) as the ESG industry continues to evolve.
However, as Ken Pucker, Senior Lecturer at the Tufts Fletcher school points out, “measurement doesn’t guarantee management… reporting is not a proxy for disclosure and disclosure does not assure action.”[9] With this in mind, and as we continue to explore the most effective and efficient solutions to achieve sustainability, we can also look to current efforts to critically examine assumptions and address issues related to ESG reporting and tools. First, many practitioners are probing whether ESG ratings actually measure ESG quality. Does a high ranking in ESG/Sustainability Index really represent achieving positive impact? What are we to make, if anything, of the variability in different ratings systems?
And, finally—just as in coffee—there’s an ongoing conversation about the use of technology in helping to measure and report performance as a way of “proving” impact, compliance, or follow-through.
Scalable Insights for Coffee Companies
These questions, and the many others, are playing out in the evolution of ESG and coffee industry sustainability conversations. For many organizations, the necessary time, bandwidth, and resources needed to meaningfully consider them, and take action, are in short supply.
However, there are opportunities for coffee actors of all scales and scopes to be agents of meaningful sustainability progress. The February 2022 Conference Board podcast, “C-Suite Outlook 2022: Which ESG Issues Do Leaders Care About?,”[10] draws from the insights shared by 1,600 C-Suite executives, offering four critical actions any business or organization can take to incorporate ESG and sustainability as a strategic business imperative.
First, identify issues that matter to your company and where you can specifically play a role on these. Even if you are a small company just getting started, don’t underestimate the importance of being clear that your current focus may be a very basic one: to simply maintain profitability so that you provide meaningful employment and contribute to the local economy.
Second, be honest and clear in how you set goals. Are you in a place where it is your best fit to be bold, ambitious, and focused on a time point several years from now? Or is it your best fit to be focused on smaller steps in the near term?
Third, whatever the chosen issues and goals, build a culture that embraces sustainability aligned with them, across every role in the company. When everyone clearly understands the company’s sustainability priorities and sees the connection between their daily work and achieving a positive impact, creativity and innovation thrive.
Last, but not least, think about how best to tell your story effectively to key constituencies. Identify and prioritize the key audiences to understand your story. Where and how do they receive information? Do they have the necessary context and way of speaking to understand your story, or is education needed? Keep in mind that truly effective communication is a two-way street. As you identify your audience and how to engage, also consider who you are listening to. As coffee and climate leader Jhannel Tomlinson emphasized in the context of combatting the climate crisis, to achieve results, “[w]e have to ensure that we give a voice to people who are often considered voiceless in conversations about climate change and climate adaptation.”[11]
In conclusion, as you move forward in shaping and sharing your story of the coffee industry, whether your strategy is “outside-in,” “inside-out,” or a hybrid of the two, keeping an ear to the evolving ESG conversation provides an opportunity to learn, adapt, and develop the strategies right-sized for your financial, ESG, and sustainability success. ◇
KELLEM EMANUELE is an independent consultant based in Chapel Hill, NC. She is the former Chief Impact Officer at Sustainable Harvest Coffee Importers, and former Executive Director and President, Global Board of Directors, of the International Women’s Coffee Alliance (IWCA).
The ESG “Origin Story”—An Abbreviated Timeline
This timeline summarizes key events and organizations involved in ESG’s evolution to date. It is not an exhaustive list.
1997: Global Reporting Initiative (GRI) was established as a nonprofit organization in response to the Exxon Valdez oil spill. The GRI is an independent standards organization to provide a common framework for companies, governments, and others to communicate about their impact on issues including climate change, human rights, and corruption.
2000: Carbon Disclosure Project (CDP) founded to encourage and influence corporate disclosure related to environmental impact. As of 2022, CDP now addresses water and forests, and is used by investors, companies, cities, states, and regions.
2003: The first International Framework for Reporting Standards (IFRS) is published by the International Accounting Standards Board (IASB) to provide accounting standards to govern how specific transactions and events should be reported in financial statements.
2004: United Nations (UN) Secretary General Kofi Annan called CEOs of 50+ major financial institutions to participate in a joint initiative under UN Global Compact to find ways to integrate ESG factors in capital markets. Event supported by International Finance Corporation and Swiss government.
2006–2007: The 2004 UN Global Compact meeting led to the creation of the Principles of Responsible Investment (PRI) in 2006 and Sustainable Stock Exchange Initiative (SSEI) in 2007. PRI is a network of those who have joined as signatories to the PRI’s aspirational principles to include ESG factors in investment and ownership decisions. SSEI is a UN Partnership Program bringing together exchanges, investors, companies, regulators, policymakers and others to improve performance and encourage investment that achieves the UN Sustainable Development Goals (SDGs).
2007: Climate Disclosure Standards Board (CDSB) is established as an international consortium of businesses and environmental NGOs to provide a globally mainstreamed model for corporate reporting that equates natural capital with financial capital.
2010: International Integrated Reporting Council (IIRC) is established in response to the global financial crisis to create solutions to mitigate the risk of the crisis recurring by providing an Integrated Reporting Framework (IR) to integrate financial, environmental, and social factors.
2011: Sustainability Accounting Standards Board (SASB) was created to develop a common language for companies and investors about the financial impacts of sustainability, including the Sustainable Industry Classification System (SIC). SICs relevant to the coffee industry include agricultural products and restaurants.
2015: The Task Force on Climate-Related Financial Disclosures (TFCD) is formed with 31 members from across 20 of the world’s major economies, the Group of 20 (G20),[12] to develop a set of financial risk disclosures to bring clarity and uniformity for companies reporting on climate action.
September 2020: Five (CDP, CDSB, GRI, IIRC, and SASB) leading standard-setting organizations for ESG issues and sustainability publish Statement of Intent to Work Together Towards Comprehensive Corporate Reporting.
June 2021: : IIRC and SASB merge to create the Value Reporting Foundation (VRF). The merger is regarded as an important step toward simplified sustainability and ESG reporting.
November 2021: The CDSB and VRF merge to create the International Sustainability Standards Board (ISSB). The new ISSB is regarded as another step toward simplified reporting for “high quality, transparent, reliable and comparable reporting by companies on climate and other ESG matters.”
March–June 2022: ISSB and GRI announce a Memorandum of Understanding (MOU) and begin collaboration to further align sustainability and ESG work programs and standard-setting activities.
August 2022: Consolidation of the VRF into the IFRS Foundation is completed.
Further ESG Reading & Resources
ESG History, Evolution to Today, and Anticipated Trends
Georg Kell, “The Remarkable Rise of ESG,” Forbes Online (July 11, 2018).
Georg Kell, “Corporate Sustainability in Crisis,” Forbes Online (June 13, 2022).
Bob Willard, “‘Sustainability’ vs ‘ESG’,” Sustainability Advantage Blog (February 22, 2022).
Alice Kalro, “Sustainability and ESG Reporting Activity,” LinkedIn post (June 2022).
ESG Investing and Regulation
Coffee Industry and Sustainability
References
[1] Andrew H. Hales, Kipling D. Williams, and Joel Rector, “Alienating the Audience: How Abbreviations Hamper Scientific Communication,” Observer Magazine,
[2] Ioannis Ioannou, “ESG is not a a 'distraction'," Board Agenda (July 25, 2022).
[3] https://www.linkedin.com/posts/alice-kalro_esg-sustainability-esgreporting-activity-6939556775742312448-pNVg.
[4] David F. Larcker, Brian Tayan, and Edward M. Watts, “Seven Myths of ESG,” Stanford Closer Look Series, Corporate Governance Research Initiative (November 4, 2021).
[5] https://www.dictionary.com/browse/sustainability.
[6] United Nations: Academic Impact, “Sustainability.” Accessed July 7, 2022. https://www.un.org/en/academic-impact/sustainability.
[7] Bob Willard, “’Sustainability vs ‘ESG’,” Sustainability Advantage blog post (February 22, 2022), https://sustainabilityadvantage.com/2022/02/22/sustainability-vs-esg/.
[8] Simon L. Bager and Eric F. Lambin, “Sustainability Strategies by Companies in the Global Coffee Sector,” Business Strategy and the Environment (August 17, 2020), https://doi.org/10.1002/bse.2596.
[9] Ken Pucker, “Fast Fashion: The Story Behind the Spin,” LinkedIn Post, Accessed June 30, 2022.
[10] Charles Mitchell and Paul Washington, “C-Suite Outlook 2022: Which ESG Issues Do Leaders Care About?,” ESG News and Views Podcast Series, The Conference Board Europe (February 23, 2022).
[11] Catherine Burge, Angie Daze, and Jhannel C. Tomlinson, “Solving the Injustice Caused by Climate Change: A Conversation with Jamaican Youth Climate Activist Jhannel C. Tomlinson,” International Institute for Sustainable Development (ISSD) (January 25, 2021). https://www.iisd.org/articles/solving-injustices-caused-by-climate-change.
[12] As of June 2022, the G20 represents 80% of world GDP, 75% of global trade, and 60% of global population. Source: “Canada and the G20,” Government of Canada, viewed June 30, 2022.
We hope you are as excited as we are about the release of 25, Issue 18. This issue of 25 is made possible with the contributions of specialty coffee businesses who support the activities of the Specialty Coffee Association through its underwriting and sponsorship programs. Learn more about our underwriters here.