As we approach 2020 and the deadline for several corporate commitments nears – including collective commitments by the Consumer Goods Forum and New York Declaration on Forests endorsers – there is an urgent need to more systematically capture progress made by companies in setting and meeting their commitments. This information is important to not only provide a stocktake of where we are today, but also to highlight areas where greater attention is needed.
To that end, SPOTT has adapted its approach to further improve transparency in commodity sectors and better enable financial institutions, buyers and civil society organisations to extract key insights from SPOTT assessments.
Why is transparency of corporate practices needed?
SPOTT assessments provide a measure of a company’s transparency in relation to environmental, social and governance (ESG) risks, including commitments to ESG best practice. ZSL defines transparent information as that which is communicated by a company via publicly available materials, made freely and readily accessible to all stakeholders.
Monitoring operations, formalising commitments, and putting associated processes in place is crucial for companies to adequately understand and respond to ESG issues, which may otherwise disrupt their activities and affect their supply chains. Without effective company disclosure, stakeholders – including buyers and financiers – cannot assess companies’ exposure to ESG risks, access the policies put in place to mitigate or address them, or review the robustness of activities that companies have undertaken to implement their commitments.
Tracking transparency, pushing for progress
The indicator framework underpins SPOTT assessments of company transparency in relation to ESG issues, and has two purposes:
- To ensure a fair, consistent and transparent approach to assessing all companies on SPOTT
- To provide guidance on the environmental, social and governance data companies should disclose and address within their supply chain
Changes to indicators
Expectations regarding corporate transparency and ESG best practice evolve over time. ZSL aims to capture the latest expectations and elements of best practice, in a sector-specific manner, in this update to the SPOTT framework.
ZSL has revised the indicators used in 2018, and developed new indicators for both palm oil and timber sectors, including indicators relating to timber legality to reflect obligations created by legislations such as the EUTR and the US Lacey Act. ZSL has also expanded the supply chain scope of the palm oil framework by adding indicators focusing on crushers and refiners, which are key bottlenecks in the palm oil production process.
Changes to methodology
Recognising the complexity of ESG issues and the challenges in addressing them, ZSL has also revised the way upcoming company assessments and scores will be presented, to reflect both the type of disclosure and the level of reporting and verification available. Together, this will offer greater nuance to users and therefore support more meaningful engagement between companies and their stakeholders.
ZSL recognises that companies are at different stages of their sustainability journey. To allow SPOTT users to better understand where companies currently are and how they are progressing, indicators are separated into three categories:
- Organisation: The transparency and content of company disclosure regarding its operations, assets and management structure.
- Examples include total landbank hectarage, the number of mills owned, reporting of salary by gender, and whether the company publishes a sustainability report.
- Policy: The transparency and content of company disclosure regarding the policies, commitments and processes it has to guide its operations and practices on the ground.
- Examples include policies on no deforestation, zero burning, and respecting human rights
- Practice: The transparency and content of company disclosure regarding activities it undertakes, in order to actively progress towards its targets and implement its policies and commitments on the ground.
- Examples include reported activities to monitor deforestation and to manage fires in concessions, and the percentage of the company’s supply traceable to mill and plantation/concession level.
Levels of reporting
The revised SPOTT indicator framework also places much more emphasis on assessing progress reported by companies in implementing individual commitments, differentiating between three levels of reporting on implementation. Within these new practice indicators, ZSL places greater weight on second- and third-party-verified information, while still rewarding companies for self-reported progress. This change in methodology was prompted by demand from stakeholders to increase SPOTT’s focus on implementation.