Edition 20 | June 2023
With this newsletter I am embarking on slightly more focused editions of the Lighthouse Keeper Newsletter. Still focused on relevant stories that need to be told, but potentially not focussing on more than two topics in one go, one of them critical, the other more uplifting! As a believer in #collapse I’d like to use this as a way to underscore why collapse is inevitable and already happening, while it’s also not the apocalypse, offering new departures. We are all called to position ourselves much more clearly for creating conditions conducive to all life. And no long introduction, just directly to the point. Ready-set-go:
A devastating month manifesting the implosion of mainstream ‘Sustainability’ Reporting
When I started writing this edition of the Lighthouse Keeper I was thinking of finalizing it a week earlier, but then thought I’ll better let the dust settle a bit from all the ‘Hosianna’ by the lemmings of #ESGLaLaLand about the launch of the I?SB’s first so-called ‘sustainability standards’ S1 (General Requirements) and S2 (Climate Change) – you actually need to be signed in on IFRS’s website to see them. To be clear:
‘Last week for me marked the death of sustainability reporting as the world needs it, and has opened the floodgates for at least a decade of further oblivion of what true sustainability is all about’.
I?SB – all for the sake of Enterprise Value
So, what’s wrong with those IFRS standards: well, nearly everything. Here are the most important ones from my point of view:
- A single materiality perspective: this has been condemned by leading sustainability veterans as soon as it was announced. It doesn’t look what damage a reporting organisation has caused/will cause, it only looks at the consequences the organization may face. It’s a reactive approach, or to say it much clearer: when you slap someone in the face, the only thing of interest in a single materiality approach is if you hurt your own knuckles! At r3.0, we called this ‘sociopathic’ in our public comment letter; look up the definition and tell us we’re wrong. So far, nobody opposed (even if our language was criticized).
- An ‘as if’ approach to sustainability: IFRS S1 and S2 don’t care about all that counts in life, just ‘sustainability-related risks and opportunities.’ Together with the earlier ridiculous aim to define sustainability as (the short version) ‘Sustainability…is the ability to sustainably maintain resources and relations…to achieve an organization’s goal.’ Could it be more nonsensical and detached from life? And well, as we know from 20 years of experience, the risk focus in such reporting will prevail, the opportunity focus will vanish. What remains: a high degree of glossy reports about nothingness, maximally degrees of less degeneration, perpetuating predatory delay that we observed now for 20+ years by all of the players involved directly or now benefiting from what’s on the table.
- Overstating language: IFRS says in their communications ‘for the first time, the Standards create a global common language for disclosing the effect of sustainability-related risks and opportunities on a company’s prospects.’ Well, yes, but one devoid of intellectual and scientific legitimacy, one completely disconnected from real-world sustainability! This is how they continue to describe it: ‘This Standard [S1] requires an entity to disclose information about all sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, its access to finance or cost of capital over the short, medium or long term […] Sustainability-related risks and opportunities that could not reasonably be expected to affect an entity’s prospects are outside the scope of this Standard.’ While not only stunning in its illusion of separation, caused by a major cognitive dissonance, it’s not just disappointing, it’s highly problematic.
- The need for ‘Interoperability’: Now that IFRS S1 and S2 just articulate outside-in single materiality, reporters would need to add GRI-based reporting to include an ‘inside-out’ perspective. Used together, reporters could ensure ‘double materiality.’ Apart from the fact that this whole myth of interoperability, creating what I called ‘Fort Interoperability’ (see visual below), was just created to allow both standards a reason to exist, even together they don’t cure the maybe worst flaw of this conumdrum:
- A complete lack of ‘context-based’ accounting, measurement and reporting: a lack of sustainability thresholds and related company-specific allocations. Do a word search of the terms ‘thresholds’ and ‘allocations’, the minimum to prove that any performance can be positioned within the planetary boundaries or ethical based norms, and you come up empty-handed. And if the terms are used, they are used in different meanings, like e.g. financial allocations or materiality thresholds.
- The power games leading up to the standards: as my colleague Bill Baue pointed out last week ‘the I?SB strategy of perpetual predator delay (embraced by so many other initiatives in our space as well) is indeed an addictive opiate, as it lulls us into complacent acceptance of utter bullshit that would otherwise offend our intelligence, if it weren’t for the future prospect of these power-holders someday embracing “systems change.” The fact that systems change would upend the power dynamics may be a clue as to why there’s a perpetual postponement of delivery on this promise. Find more condemnation in the below quotes from threads on Linkedin.
- The whole public comment process used as a confirmation of ISSB’s direction was and is – mildly speaking – a sham: The ISSB published a ‘Feedback Statement’ in which it responds to certain parts of the feedback they received. Many of us searched for the feedback on our concerns we had – crickets. Nowhere to be found. And when we looked back at the site in which all public comments that were made got registered, it was gone. After asking we heard the webmasters at the IFRS pushed it all elsewhere. Call it stupidity, but these people had to know that all posts written, all comments made with a link to these documents now come up with a broken link. It’s hard to believe the webmasters of IFRS don’t understand the 101 on basic transparency rules. Well, maybe it all happened amateurishly, but maybe not. It’s these sublime tactics we know oh so well from these power games, ignore any input that didn’t align with their preconceived plans.
E?RS – all for the sake of less burden for reporters
Weeks earlier, on June 9th, late on a Friday afternoon, the EU published a Delegated Act in which they downsized the ambition of the ESRS in a way that its overall use is questionable and effects for investors diminished in ways that it is close to useless. ‘Proportionality’ was also the next (new) buzzword here in watering down what was once our ‘last hope’ for the field.
So, again, what’s wrong with the proposals of the EU Delegated Act? Here’s language we will use in our r3.0 response to the EU that is due this Friday:
- No correction of what’ generally wrong with the ESRS, namely that its integration of what is now called “double materiality” falls short of what’s needed for an authentic approach to materiality for sustainability standards, as such materiality would need to integrate reference to sustainability thresholds in ecological, social, and economic systems – sometimes also referred to as the carrying capacities of the capitals, ie vital capital resources that rightsholders rely on for their wellbeing (see McElroy 2019 Making Materiality Determinations: A Context-Based Approach United Nations Research Institute for Social Development); related to that the integration of the concept of thresholds & allocations, such integration of thresholds & allocations into the ESRS standards is so far purely ad hoc, applied to only some of the Standards, when logic would demand that they be applied across the board, starting at the highest level in ESRS1 and ESRS2, and cascading through ALL other Standards;
- From mandatory to voluntary: while we appreciate that ESRS1 and ESRS2 remain mandatory, it’s highly problematic that the majority of the Standards – 5 Environmental, 4 Social , and 1 Governance – have been shifted from mandatory to voluntary (based on materiality assessments). This differential treatment of ESRS 1 & 2 on the one hand, and all the ESRS E, S, and G Standards does not hold water intellectually – indeed, the stakeholder who experience companies E and S and G impacts do not have the luxury of such discretion – the impacts do not disappear when companies opt against disclosing them. The only mandatory Standards, ESRS1 and ESRS 2, are devoid of the very thresholds that define sustainability. Accordingly, this proposal essentially transforms ESRS from a normative sustainability standard to an incrementalist ESG standard.
- This points to the fatal flaw in the EU’s “proportionality” argument, which essentially seeks to relieve companies of the burden of disclosure without commensurately relieving stakeholders of the burden of companies’ impacts. It is true that companies bear proportionate responsibility for their proportionate impacts on shared resources (such as the climate regulation system or freshwater), the act of disclosure is binary, and cannot be divvied up like pieces of a pie: a company either discloses its impacts, or it does not. Creating impacts on resources that stakeholders and rightsholders rely on for their wellbeing generates a duty or obligation to disclose said impacts. The only way for companies to relieve themselves of these duties and obligations is to divorce their business models from these impacts.
- The same critique applies to the shift to voluntary materiality, whereby companies may (not must) explain why something is not material. If an impact is not material, the burden is on the company to demonstrate this lack of materiality. The GRI G3 Standard introduced a far superior approach, the comply or explain regime that allowed companies to omit issues that it could demonstrate were immaterial. Essentially, this would amount to demonstrating that the company’s business model does not intersect with a resource that stakeholders or rightsholders rely on for their wellbeing, such that the company bears no duty or obligation regarding that resource, hence that impact is immaterial. The danger of the approach proposed in the Delegated Act is that companies could have a material impact on resources, but legally opt against disclosing that impact, leaving impacted stakeholders and rightsholders in the dark as they experience the impacts.
- Voluntary disclosure of compatibility of business model and strategy with “planetary boundaries” (ESRS 4): the most pressing sustainability issues are those associated with tipping point thresholds, or non-linear phase shifts from an existing state, into a new, unpredictable, state – particularly adverse, catastrophic, or existentially compromising states. The Stockholm Resilience Centre’s Planetary Boundaries (PBs) framework connects many of the PB thresholds, such as climate change, directly to adverse tipping points. Accordingly, the PBs are the last sustainability issue that should be made voluntary to disclose, precisely because transgression of the PBs represents the greatest sustainability risk – or more precisely, existential risk. A similar logic applies to biodiversity transition plans, which the Delegated Act makes voluntary. ESRS logically requires companies to disclose their climate transition plans, but fails to apply the same logic of requiring companies to disclose their biodiversity transition plans. This difference would seem to rest on the logic that a climate transition is necessary, but a biodiversity transition is not, which is utterly irrational in the midst of the 6th Mass Extinction event that humanity is currently navigating.
- Intransparent stakeholder dialogue process: the Delegated Act relieves companies of the responsibility for disclosing their stakeholder dialogue process, thus making it essentially impossible for stakeholders and rightsholders to assess the sufficiency of companies’ stakeholder engagement.
- Modification on information disaggregation: the United Nations Sustainable Development Performance Indicators (UNSDPI) note that companies can hide unsustainable performance through lack of “granularity.” Enabling companies to opt out of information disaggregation by specific sites essentially invites companies to conceal unsustainable performance.
- Modification on diversity: similarly, the Delegated Act’s modification on diversity, requiring disclosure only of non-discrimination policies, does not make logical sense. In addition to company commitment to diversity supporting basic human rights, greater diversity is strongly correlated to stronger business performance, so systematically depriving stakeholders of diversity information runs contrary to common sense.
- Interoperability with I?SB: While we appreciate the value of alignment between reporting standards for creating consistent disclosure demands for companies and comparability of data for stakeholders, we retain healthy skepticism over the focus on “interoperability” with the International Sustainability Standards Board (ISSB, or I?SB as we prefer), precisely because I?SB is not a sustainability standard. The most concerning aspect is that ESRS is shifting itself closer to the I?SB definition of financial materiality. Speaking of the recently released I?SB Standards, Mirova CEO Philippe Zaouati said, “the logic of simple financial materiality is mortifying. Applied not just to the climate, but to all other environmental and social issues in the future, it means the absence of corporate responsibility for the general interest. Fortunately, the reporting standards that the European Commission is about to adopt are based on a double materiality, albeit somewhat watered-down.” Accordingly, ESRS shifting itself to accommodate I?SB represents exactly the wrong directionality, as it shifts ESRS away from sustainability performance disclosure. Any and all interoperability dynamics should shift I?SB to ESRS, not the other way around.
- The most critical aspect has now been presented for information users (mainly investors): the consistency of data for investors is now severely undermined. Eurosif released a press release in which they stated: ‘Eurosif is very concerned with the European Commission’s latest changes to the draft standards, which mark a significant setback in ambition compared to the final recommendations published by EFRAG in November 2022. […] The proposed draft Delegated Act renders all ESRS standards, disclosure requirements and data points subject to a materiality assessment. Combined with the added flexibility authorised by the Commission for these assessments, this would effectively allow companies to leave out entire parts of their sustainability disclosures. If adopted as such, this draft Delegated Act risks undermining the effectiveness of the CSRD as well as the implementation and coherence of the EU sustainable finance framework. Investors and other financial market participants need reliable and comparable sustainability-related corporate disclosures to make informed investment decisions. […] Furthermore, making some of the most essential climate disclosures – including indicators on GHG emissions, climate targets and transition plans – subject to a materiality assessment is inconsistent with the EU Commission’s commitment to deliver on the objectives of the European Green Deal and EU Climate law.’ See also here from Responsible Investor.
Fort Interoperability – let the orgies begin
Instead taking the last straw we had, ‘Fort Interoperability’ is now completely built on bubbles of fatal jargon, lots of hot air and simply to no effect for humanity or sustainability, apart from having cemented the walls in a way that accountants, opportusultants and lobbyists can celebrate opulent orgies, paid through money that corporations now need to spend to get hold of this triangulated regulatory madness. Quite a sad month for those that believed in the management capacity, intellect and trustworthiness of the standard setters.
Sustainability Reporting, represented by the I?SB, GRI and most likely the E?RS has more or less imploded. It is nonsensical, enterprise-value based and self-serving to the people involved within the walls. The last opportunity to get the job done got wasted, and curing this disaster would take too long in the given urgent timeframe we have. Let’s face it: It’s over! There are factually no sustainability reporting standards, whatever the pied pipers tell!
We are prepared to just let this whole industry ride into the sunset, they declared themselves irrelevant for what’s coming after an inevitable and coming collapse. We will continue to offer the UNSDPI Trainings that offer the only third way out of this complete failure. We have had 6 cohorts of extremely concerned practitioners, and gave them hope of concentrating on what’s really needed. The good thing is that the UNSDPI are compatible with whatever other reporting requirement forces companies to comply with any of these ESG Standards, but make life much simpler, clearer and rock-solid for defence. We will be back in late fall with new Trainings on November 1 &2 and December 6&7, registrations will open soon.
On a somewhat connected note: In that very same week as the I?SB standards came out, we saw the second failed attempt of the EU Nature Law to pass the EU gremia and it is now in the EU Parliament to get voted on; it either passes or it dies, and there goes the EU’s Biodiversity plan in its current form. Whatever follows will again take time we don’t have. It’s not yet the end of the EU Nature law, but we shouldn’t be surprised if it fails for a third time.
Those that immersed themselves in #Collapsology are not surprised. What happens here follows the inevitable logic of collapse. Add more news of the Canadian wildfires, Australia’s move away from double materiality, Shell dropping its climate targets for more fossil fuels and higher profits, drought to become the next pandemic, the demise of Arctic Summer Ice, the new Earth Commission’s report describing the failure of 7 of eight measures to restore Earth’s health, and the pattern becomes clearer. The institutions we built in the old economic paradigm are unable to transition themselves
But there’s no reason to give up. The good thing of accepting collapse and working towards a ‘post-collapse readiness’ (seeing collapse not as the apocalypse, just an ending of the stereotypes we once thought we could take for granted) is to see the already emerging beauty of midwifing the new in the form of a restorative economy, regenerative and distributive, not accepting the continued colonialized aspects of the Global North/Global South divide.
Sustainability that the World Needs
Now for the good news: one aspect of the Lighthouse Keeper Newsletter is to feature those that had their epiphanies, partially also caused by the work of r3.0and its processes of content generation, collaboration and advocation. You may remember that I clustered consultancies into ‘assaultancies (humanity-toxic), ‘opportusultancies’ (humanity-indifferent) and ‘prosultancies’ (humanity nurturing) in the last Lighthouse Keeper. The example of the collaboration between our Advocation Partner arkH3 and AndNowWhat, resulting in a 6-part series of webcasts and community building, is one I’d like to specifically feature this month, and may it become a big success. If you ever needed a good example of ‘prosultants’, those that have been at the turning point and created what’s necessary for their very own peace of mind, now sharing it with the world, here you have it. And needless to say, that’s the sort of snowball effect we at r3.0 always wanted to have through our pre-competitive and market-making positioning.
Our friends at arkH3 and AndNowWhat joined forces recently to announce SWoN – Sustainability that the world needs. And we’re totally on board with them!
As Alice Kalro says on her announcement of @arkH3: ‘A couple of months ago I announced my departure from the leadership team at Goodera, with the intention to step up to my responsibility towards the planet, its systems and all sentient inhabitants. I aimed to do so via savvy systems interventions and focusing on delivering systems transformation leadership as the crux of my day job. My new role leads the conceptualisation, development and delivery of transformational value propositions and offerings designed to invite and empower business and sustainability leaders to take a similar leap and upgrade from business-as-usual to Business-as-the-World-Needs, from corporate sustainability degraded to compliance and perceptions management, to Sustainability-as-the-World Needs.’ I recommend to lalso isten to Alice’s recent interview with @Climate Asia to hear first-hand about her motivations.
Similarly, AndNowWhat co-founders Neil Davidson and Anne Billen add: ‘We have been privileged to walk (more like run to catch-up!) with Alice as we have co-developed a series of trainings aimed at Sustainability-as-the-World-Needs (SWoN). The Series channels Anne’s deep collapse-awareness, Alice’s current sustainability understandings and business acumen, and my hard-won systemic insights and frustrations at the lack of (real)progress against sustainability objectives for decades. We have woven an offering together in ways that we could not have done alone. We believe it will be truly helpful to encouraging you to start undertaking the systemic interventions you already know are needed.’
Here’s the website that gives you all info about the Training starting in August, plus a brochure to immerse into. As far as I can see the response was extremely resonating, just seen the pure amount of heart-warming responses to the offering.
As @r3.0 I am proud to say that we are able to offer all readers here a 10% discount on the (anyway digestible) course fees, simply send me a PM and you’ll receive the coupon code in response. What are you waiting for?
Activating Restorative Norms
Another event to look forward and to be excited about is the 2023 10th International @r3.0 conference on September 12/13 in a hybrid mode either online or in-person at the Pakhuis de Zwijger in Amsterdam. As this the second ‘lustrum’ conference (as they call it in Dutch for 2×5 conferences) and the time for real transformation has come, we are extremely proud of discussing ‘Activating Restorative Norms – Healing Harm, Connecting for Change.’ It’s fair to say that this is the most ‘radical’ conference we ever prepare for, while radical is just what’s necessary in our view. The set of speakers is stunning, see yourself.
Here’s what we have in mind:
Social norms determine our fate: in the Anthropocene, our collective action is adding up to cumulative harm that’s overtaxing our earth’s provisioning systems while simultaneously undermining livability for billions, leading us to the cusp of crossing catastrophic ecological and social tipping points. On the flip side, social norms also hold the key to our salvation: the most efficient and effective way to heal our cumulative harm is to transform from destructive to restorative social norms, harnessing the exponential power of prosocial collective action.
Here, the very same dynamic that threatens our survival — tipping points, or sudden phase shifts from a stable state of being to a radically different state — can instead deliver our redemption. So, just as our collective action can tip the systems we rely upon into collapse, so too can our collective action tip us into desirable states — in particular, stabilizing our systems against the threat of adverse tipping points. Working together in solidarity is the only way for humanity to navigate through the predicament we’ve created for ourselves. The Conference will explore ways to connect to create the change necessary to heal the harms that are embedded in many of our systems, by activating new social norms that restore balance in humans’ relationships with each other and with nature.
We structure this year’s Conference around four Interconnected Themes:
- RESTORATIVE ECONOMICS – Redesigning economies to thrive through regeneration & distribution. To heal the harms wrought by predominant economic systems, we must collectively embrace more just, life-affirming economic systems that have long thrived on the margins. This session, which supports r3.0’s development of the new Regenerative & Distributive Economy Blueprint, invites positive maverick economists to share their vibrant work on re-asserting economies that serve life.
- MARGIN-CENTERED WISDOM – Natural & cultural evolution thrives in the fertile soil on the peripheries. Marginalized communities excel at transforming adversity into resilient brilliance, in part due to honoring the human capacity to grieve loss and yet persist (exemplifying the “abundant edge effects” Principle of Regenerative Vitality). This session, inspired by explorations in r3.0’s Global Thresholds & Allocations Network work, invites members of these communities to share their understandings with our diverse Conference community.
- COMMON GOOD GOVERNANCE – Reorienting governance from individual ownership to collective stewardship models. The sun is setting on governance by institutions that entrench the status quo to defend the territories they “own,” and rising on governance in service of collectively stewarding the commons to cultivate abundant resource flows in perpetuity. This session continues to build on the activation of r3.0’s Funding Governance for Systemic Transformation Blueprint.
- TIPPING INTO PROSOCIAL NORMS – Triggering beneficial social norm tipping points to avert adverse tipping points. Social norms that reinforce antisocial outcomes (carbon hogging, extreme inequality, biodiversity destruction) and risk triggering catastrophic social & ecological tipping points, can be transformed by triggering beneficial tipping points into prosocial norms. Speakers in this session, which builds on r3.0’s thresholds & allocations work, explore the double-edged sword of tipping points.
If this appeals to you and you’d like to experience it all first hand, here’s the ticket site.
As always, I close with the latest Sunday Thoughts of the last weeks. While in Norway I had a huge visibility of the ‘Sustainability Expert Impostor Syndrom’ post, and follow-up post I called ‘The Denial Brew’, about 100.000 views altogether. It has shaken things up quite a bit, as much as I can tell from the hundreds of reactions.
Be well all!