14 indicators of a sustainability initiative's
strengths and weaknesses
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Tailor-made for investors and developed with investor input, this tool is structured as a set of 14 red flags that provide warning signs that a sustainability initiative may not be a reliable indicator of corporate performance. It includes a checklist to help investors assess whether a sustainability initiative is effectively designed to reduce supply chain environmental and social risks, and to support investor engagement with portfolio companies.
What is a sustainability initiative? Article 20 “Accompanying measures” of the CSDDD states that “companies may participate in industry and multi-stakeholder initiatives to support the implementation of the obligations referred to in Articles 7 to 16 to the extent that such initiatives are appropriate to support the fulfilment of those obligations.” While this tool can be applied to all such initiatives, the examples within the tool draw from multistakeholder initiatives (MSIs) both those that offer certifications and those that do not. |
CLICK HERE FOR THE RED FLAGS AND CHECKLIST |
How to Use this Tool
Red Flags in Sustainability Initiatives is a guide for how companies and investors can spot potential risks in certification and other social auditing schemes they rely upon. It is intended to facilitate more informed investor engagement with portfolio companies around the role of social initiatives in their due diligence.
Together the 14 Red Flags serve as a guide for how companies and investors can spot potential risks in sustainability initiatives, they rely upon to conduct due diligence. Each Red Flag is significant in its own right; the order does not reflect priority. The presence of a single Red Flag is not, by itself, a reason to avoid a scheme; nor does the absence of most Red Flags guarantee reliability. An initiative's weakness, such as an audit’s insufficient coverage of operations, is not necessarily a reason to avoid the scheme; participation in a scheme, even one with weaknesses, can offer more assurances of good practice than if a company opts out of the scheme.
Investors can use this guide to assess the quality of an initiative or certification and its capacity to provide assurance of effective due diligence. Investors can use the tool:
Together the 14 Red Flags serve as a guide for how companies and investors can spot potential risks in sustainability initiatives, they rely upon to conduct due diligence. Each Red Flag is significant in its own right; the order does not reflect priority. The presence of a single Red Flag is not, by itself, a reason to avoid a scheme; nor does the absence of most Red Flags guarantee reliability. An initiative's weakness, such as an audit’s insufficient coverage of operations, is not necessarily a reason to avoid the scheme; participation in a scheme, even one with weaknesses, can offer more assurances of good practice than if a company opts out of the scheme.
Investors can use this guide to assess the quality of an initiative or certification and its capacity to provide assurance of effective due diligence. Investors can use the tool:
to assess the maturity of certifications
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as a starting point for engagement
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as an educational resource
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to guide conversations with certifiers
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Informed by four beta tests conducted between October 2023 and January 2024, the tool reflects investor input on anticipated uses of Sustainability Initiatives.
MSIs are just one facet of human rights due diligence. Even as investors refine their evaluation of initiatives, they should press portfolio companies to establish effective, company-level due diligence systems that go beyond certifications.
MSIs are just one facet of human rights due diligence. Even as investors refine their evaluation of initiatives, they should press portfolio companies to establish effective, company-level due diligence systems that go beyond certifications.
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