What are the limits of corporate ESG responsibilities?
This edition takes a slightly different take on the tragic Francis Scott Key bridge collapse and other incidents from the corporate responsibility perspective.
On the 26th of March, at around 1:30am local time, the now infamous MV Dali struck one of the supporting pillars of the Francis Scott Key bridge just outside the port of Baltimore in Maryland, US. The crash led to the total collapse of the metal span, the likely demise of 6 people and temporarily blocking access to one of the main US East coast transport hubs. The investigation into the incident’s causes is ongoing. Although there’s a fair bit of speculation on the potentially intentional nature of the crash because of the ship’s position in relation to the navigation buoys, it is currently being treated as an accident. A plethora of articles were written about the history of the bridge, recent shipping accidents (the Ever Given is still fresh in people’s minds), the federal promise to rebuild the bridge and the potential short-and medium-term consequences of the bridge collapse.
This article takes a somewhat different look at this and other recent incidents from the ESG (Environmental, Social, Governance) corporate responsibility perspective. Specifically, how do companies involved in such incidents accrue their impacts in their sustainability, climate change or DEI (diversity equity and inclusion) reports?
It sounds funny to think of it this way. Many businesses have taken it upon themselves to be responsible corporate citizens, to contribute to societies more than just through shareholder profit maximization, such as acting on carbon emissions, or ensuring equal access to jobs and so on. Many of these corporations also enjoy the benefits of ESG actions by promoting their businesses as ‘sustainable’, ‘inclusive’ and so on, sometimes allowing them to improve their bottom lines. What happens when the businesses that have taken responsibility for environmental sustainability and the lives of their stakeholders end up (often inadvertently) damaging them?
Why ESG Matters
ESG (Environmental, Social, Governance) is a key tenet of stakeholder capitalism. Stakeholder capitalism highlights the importance of corporate activities beyond the business operations themselves, to the lives of those affected by operations (whether employees, contractors, or communities) and the environment where these operations take place. The ESG framework provides the base upon which the main aspects of stakeholder capitalism are measured and reported on. ESG is one of the main reasons why so many companies publish sustainability reports where supply chain carbon emissions are tracked or why staff and board diversity are considered.
The ESG instrument has triggered a renewed interest in corporate operations and their broader impact. Whether ESG is an instrument for corporate accountability or corporate neo-colonialism is still being debated. Businesses are tracking their supply chain emissions footprints, setting carbon emissions reduction goals and trying to reduce carbon emissions in their operations and their supply chains through carbon offsets, renewable energy contracts or alternative fuels. Progress, especially on carbon emissions, is often publicized and highlighted. It should be so. Much of my business’ consulting work focuses on mapping, tracking, and managing supply chain emissions. It is great to see the renewed interest businesses are taking in their operations and the ways operations, efficiency and environmental impact can be improved.
Can’t Have Your Cake and Eat it
The key advantage of ESG – responsibility - is also its key disadvantage. Corporate action for the environmental and social impact of business operations can be a fantastic tool to showcase responsible initiatives. The reverse should be true as well. When business operations do cause incidents, accidents and the like, the impacts should also be reported on the same sustainability reports. Otherwise, ESG reporting simply becomes a public relations tool with no genuine accountability. This was the main critique to corporate social responsibility (CSR) concept that preceded stakeholder capitalism and ESG.
“CSR reporting is too focused on good news and stories with emotive content designed to redirect reader’s attention from events that might cast a poor light on the company’s actions” (Gray et al., 1995)
Remember, anthropogenic global warming is the fundamental issue that corporations are trying to help resolve. CO2 and other atmospheric gas concentrations go up or down irrespective if they have been reported on in a sustainability report. Corporations claiming recognition for the positive impacts of their actions while overlooking the negative is really trying to have a cake and eat it too.
What does this all have to do with the Francis Scott Key bridge? In the aftermath of the incident, the port of Baltimore was closed to vessel traffic -somewhat expected given the enormous chunk of metal lying on the port’s channel. This means that cargo and passenger (mainly cruise ship) traffic will be redirected away from the port. The two closest alternatives, especially for container traffic, are New York/New Jersey (about 170 miles/270 km away) or Norfolk (about 230 miles/370 km from Baltimore). Cargoes to or from Baltimore must make the additional transit to or from one of these ports. My crude estimation indicates that for every day the port is closed an additional 1,000 tonnes of CO2 are emitted just from redirecting containers away from the port.
What is the point of responsibility and accountability through ESG reporting if inconvenient aspects are ignored?
Maersk, the MV Dali operator, claims that in 2023, their operations ‘saved’ more than 683,000 tonnes of CO2-e from being emitted. One may wonder, how much time, effort, and energy the company will spend to estimate the emissions footprint of redirecting cargoes, bridge wreckage removal and new bridge construction. My suspicion is not very much. Similarly, the same company highlights its diversity and inclusion efforts over several webpages. Should the gender, diverse abilities, and nationalities of the 6 people presumably dead in the incident be discussed in the company’s reporting? These questions may sound odd, but what is the point of responsibility and accountability through ESG reporting if inconvenient aspects are ignored?
Is the Past a Good Predictor for the Future?
Ultimately, how Maersk and other corporations involved will choose to deal with reporting the consequences of this event is, for now, only speculation. However, the past may be an indicator for future behaviour. If only there would be some large-scale incident with wide-reaching consequences in recent times. (Un)fortunately there’s no shortage of these recently.
Take for instance the Norfolk Southern railways’ East Palestine derailment in February 2023. The train involved in the derailment contained 20 cars of hazardous materials, including half a million litres of vinyl chloride (the precursor for PVC), around 175 tonnes of butyl acrylate and ethylhexyl acrylate as well as ethylene glycol monobutyl ether. Some of these substances ignited creating a dark plume on the sky for several days. Much of vinyl chloride was vented into the atmosphere to prevent an explosion. These measures have environmental impacts. Immediately after the derailment, observers noticed more than 3,500 fish in nearby waters had died. Months after the incident, residents still reported health issues and local waters sources were still showing high concentrations of chemicals.
Although Norfolk Southern annual ESG report mentions the East Palestine incident, it makes little mention of its environmental consequences. The report rather looks at the company’s efforts to remedy the consequences of the incident. Yes, companies should highlight that they’ve been involved in salvage efforts, but to brush off almost completely the environmental, health and societal damage caused by the incident seems somewhat off.
The Ever Given Suez Canal incident is another example of event that has had direct consequences on global supply chains, leading to increased emissions footprints from congestion and diversions. Dozens of ships rerouted away from the Suez Canal and around the Cape of Good Hope, a 19-day detour to avoid the incident site. Port congestion lasted for months due to disrupted schedules. Bear in mind that one day’s worth of sailing can use up to 400 tonnes of bunker fuel for the largest ships generating over 1,000 tonnes of CO2-e per day. Ships waiting in congestion can use up to 20 tonnes of fuel per day simply by idling! Yet, again, the 2021 Evergreen corporate social responsibility report briefly makes mention of the Ever Given while completely overlooking these consequences.
Adopting Responsibility
There may be a way forward to ensure that the impacts of such large-scale incidents get captured in corporate reporting. The greenhouse gas emissions (GHG) protocol, the Smart Freight Centre Global Logistics Emissions Council (GLEC) framework and the Science based Targets initiative (SBTi) provide guidance on emissions modelling for organisations and their supply chains. Although these are not legislated, most organisations follow the GHG protocol or GLEC framework guidance and also have the results audited by independent consultants.
This infrastructure could be used to provide businesses with a way to manage emissions and other impacts from such unexpected but high-impact incidents. The added benefit to this approach is that companies may become more aware of the benefits of maintaining high safety standards and robust risk mitigation practices.