How is corporate responsibility evolving?

Welcome back to Sustainable Views, the podcast looking at sustainability policy and regulation. My name is Philippa Nuttall, I'm editor of Sustainable Views. Today on the podcast, we're going to be looking at corporate reporting and corporate responsibility. So corporate reporting in general is still mainly focused on climate impacts and emissions. Under legislation such as the EU Corporate Sustainability Reporting Directive, companies must also report on nature and social indicators as well as emissions, for example, and the EU Corporate Sustainability The Sustainability Due Diligence Directive, when it finally comes into force, should shine a greater spotlight on human rights abuses. But grey areas remain, and there are constantly new challenges arising in the area, such as the use of AI, and also most recently, how companies should be responding as the US Immigration and Customs Enforcement and Border Patrol, or ICE, as everybody knows it as, expands its role. So with me today to dive into this subject are Sustainable Views' UK reporter Florence Jones. Hi, Flo. Hi. And acting deputy editor Elizabeth Meagher. Hi, Lizzie.

Hello.

So, Lizzie, I wanted to start with you. You recently wrote a piece at the end of January about ICE and how companies are being encouraged by their own customers and investors to start standing up a bit more in the face of what's happening in Minneapolis and ICE, and especially after the recent shootings. Can you give us a bit more detail about what you wrote about and kind of what you found?

Yes, so the piece was really about the kind of quite striking difference between the way companies have responded to this turn of events compared to other kind of dramatic political moments, most specifically the January 6th insurrection. So what people were really kind of— I spoke to a couple of investors, a couple of kind of sustainability advisors, consultants, and people were really struck by just how silent most businesses have been. There was a statement put out by the the Minneapolis Chamber of Commerce. 60 companies signed that, but the people that I spoke to weren't hugely enamoured by that statement. They said it was pretty wishy-washy. One person actually said it was worse than saying nothing.

And what did the statement say? Can you give us a bit of a flavour of what it said?

Yeah, so it used the term de-escalation, which was particularly what people took issue with because that was a term kind of being used by the government that implied that it was a kind of both sides as bad as each other issue where this was just The statement was issued the day after Alex Pretty was shot. And so, calling for de-escalation, for a lot of people, that just didn't wash. So, the piece was kind of looking at the absence of comment rather than what some companies had said. There were a couple of things that came out of that. And so, one thing, when I spoke to Michael Posner, who is at the Stern Center for Human Rights, he was talking about due diligence that companies have to do, and human rights due diligence. Typically involves thinking about employees being treated with respect and fairness. Historically, immigration policy has never been a part of that consideration, but he was saying, you know, these recent events suggest that maybe companies should start thinking about this, particularly those that are most exposed. So people that have kind of low-paid service workers, retail, consumer-facing companies, where, you know, some of these companies had ICE agents in the parking Parking. I was going to say parking lot. Car park. Thank you. Waiting in the car park for staff to arrive. And he was suggesting that, you know, the way due diligence should be applied in theory should address some of those issues, particularly under the UN guiding principles and, as you mentioned, the EU's corporate sustainability due diligence framework.

And I noticed, I was reading your piece this morning again, that Michael Posner had also said that businesses have an obligation to speak publicly on these issues. Is that, as you've suggested, an obligation under law, or is it more kind of a moral or sort of just duty of care obligation that he sees that as?

So it doesn't seem to be a legal issue. It's more, I think, certainly reputation, but also investors. So there is a kind of growing network of investors that are kind of pushing companies to be outspoken about these things. I think that's mostly from the reputation harming the bottom line angle. It's difficult to kind of quantify reputation risk, and that's something that I'm kind of always thinking about, like, is that actually a real risk? What we have seen since that piece I wrote was the French tech company Capgemini has announced that it's going to sell one of its US subsidiaries that has a contract with ICE. And I think that that's kind of one of the clearest signals that we've had that these are kind of material risks. And kind of on that, attention has definitely been focused mainly on companies that have contracts with ICE or with the Department of Homeland Security. And there are kind of so many resources out there online telling everyone exactly how to kind of leverage your influence over those companies and pressure them to end contracts. So I think those are the companies that are kind of most exposed to this risk.

And you mentioned, I think you wrote your article at the end of January, and you mentioned Capgemini and its decision. I mean, are we seeing a a change, do you think, in stance from companies that they feel, or at least waking up to the idea that they have a certain responsibility towards employees more than before? Do you think this is sort of awakening them up or making people ask more questions than was perhaps the case before? Or is it sort of more digging down a little bit like we've seen in general in response to the Trump administration and kind of not wanting to stick their heads above the parapet and be different than their peers?

Yeah, I think it's the second one. I think that the more companies are kind of brave and do speak out, the more others will get comfortable with that. No one wants to be the one that gets targeted, but I think the kind of principle that if everyone's speeding, then you can't all get pulled over at the same time. So I think that, yeah, you're kind of relying on a couple of brave companies, maybe ones that don't have government contracts. We're particularly seeing a lot of pressure. Some of the more successful pressure campaigns seem to be on, well, So on the French Capgemini company, a couple of Canadian companies have had a lot of pressure. I think those with substantial business elsewhere are in a slightly stronger position in terms of speaking out.

Okay, excellent. Thanks. And Flo, I wanted to move to you now on a bit of a related subject around reporting and how much we can even trust reporting. So companies may be saying that they're doing certain things, writing them in their annual reports, their ESG reporting, their financial reports, but how trustworthy is any of this? And particularly particularly with the advent of AI. And you wrote a piece recently looking at this kind of increasing use by companies to write their ESG reports using AI. And perhaps, yeah, talk us through a little bit what you found.

Yeah, absolutely. So I think we've seen since 2022 when ChatGPT launched just kind of the widespread adoption of AI. There's now various different chatbots on the market and many companies, rather than it being something that employees are doing in secret to make their work easier, there's actually loads of companies that are actively actively asking their employees to use chatbots. They have kind of corporate login accounts, or they'll kind of make their own versions of these models, which are trained using the underlying data from a tech company, but then they can insert certain proprietary information. So when we're thinking about the workplace, there's no denying that AI is definitely a part of that now, and that presents all sorts of risks when we're thinking about sustainability and ESG. And you mentioned reporting specifically. Yeah, and this, the piece you referenced that I wrote, I was speaking to Claire Bodan, Alison Taylor, who's a specialist in corporate reporting, and she founded Falcon Windsor, and she's been telling me that reporting is especially ripe for this use of AI because reports have got longer. The expectations of what companies should be disclosing, what's material, is now much more. And oftentimes, because of the wider economic environment, companies haven't made their reporting teams bigger. So there's that temptation for employees to kind of use shortcuts where they can. And she predicts that, you know, this is definitely happening. Whether it's being properly disclosed or not is another question. And this raises problems for a couple of reasons. One is accuracy. Of course, we've seen loads of examples of AI hallucinations. I mean, just this week we had Ariana Grande on the COVID of Vogue with 6 fingers. I think these kind of mistakes are now really commonplace. But if you're writing a report as a company, your annual report or your sustainability report, that information has to be accurate for investors, for consumers. Policymakers, for the wider public. So accuracy is the big question. And the other question that Claire raised that I thought was really interesting was this idea of commentary. And in most annual reports, you'll have sections where the board has kind of reflected on the year, how it's gone, what they expect to see in the year ahead. And if you're using an AI model to write that for you, to what extent is it really your opinion? And when investors are reading these reports, they expect it to be the opinion of the board. So there's a wider concern about that kind of gradual erosion of trust in reporting. And what that could mean for the entire practice of company reporting.

Yeah, which is a massive question given we have legislation like the CSRD coming in or the CSDDD and also to bring companies to task potentially around more human rights abuses and to actually work out what's going on. One of the questions that often arises as well is the use of AI itself and the emissions it's producing and how you track this? And I think within your reporting, you sort of discussed a bit scope 3 emissions and, yeah, how the use of AI could be tracked as a scope 3 emission.

Yeah, absolutely. So I suppose often when we think about AI, we think of it as being this kind of thing in the air that doesn't really exist, but it has a material impact, and that impact's largely found in data centers. Of course, it's been widely reported now that data centers are incredibly energy intensive and they use a lot of water in the cooling facilities. And when kind of the AI rollout first started scaling, there was loads of reporting about that, myself included. I was writing articles on that. And then it seemed that companies kind of went, oh yeah, that's really bad, and then just kind of cracked on using AI as if it had never happened. And we've seen in the US the expansion of gas, for example, to power data centers. So there's no denying that AI has an emissions footprint, but it seems to be at the moment that there's limited responsibility for that footprint. So we all know that the tech companies have seen their emissions increase substantially. So if the tech company owns the data center, that's their Scope 1 emissions. If they're kind of contracting it from a third party, it's their Scope 3, but that's like a direct relationship. But I was kind of interested to know, well, if you're a company and you're telling your employees to use AI every day, what does that mean for your Scope 3 emissions? And that's been a really interesting conversation, and it seems that not very many companies are really thinking about this yet. But that being said, this is absolutely a Scope 3 emission. The challenge at the moment is that it's very hard to quantify, partly because the tech companies themselves are not very transparent about the actual emissions profile of, for example, a single search using ChatGPT. So there's a lot of kind of working out to be done, and at the moment, Scope 3 disclosures are not mandatory. So it kind of remains to be seen what this will actually mean. But make no mistake that that is a scope 3 emission for a company. And if they're kind of saying everyone should be using AI, that does have an impact on their emissions footprint.

Yeah, I think from what you've both been saying, what's really interesting are these questions of transparency. And we've seen since the Trump administration in particular has been in power in the last 15 months or so, this idea of green hushing and that companies actually carrying on doing lots of work around sustainability, sustainability or reporting, but not really talking about it. Lizzie, do you feel at the moment, I mean, in the US and in the wider world, we're at kind of an inflection point whereby companies are either going to sort of burst through this a bit and actually to give their investors and consumers a greater sense of confidence that, you know, they're kind of okay and they're to be trusted, that they are going to sort of push back against sort of this greenwashing and be more open about what they're doing, whether it's around ICE or corporate reporting or anything else or sustainability issues? Or do you think we're really at a point whereby there's going to be almost a permanent pushback or at least a pushback for the next couple of years whereby it goes very quiet on the whole front in terms of sustainability and companies we really see kind of just digging down, hiding back and saying, you know, this is our business and we don't want the wider world really to know what we're doing. And so it's no longer a selling point. You mentioned reputation. And then sort of a couple of years ago, being sustainable seemed to be something positive for your reputation, or do you now see a change there that could last longer than potentially the next couple of years?

I'm not sure about— it's difficult. So on one hand, I think that the sustainability just as a selling point thing is probably over. I do think that it's, as we've talked about multiple times, the backlash has been kind of overblown, driven by a few small, very influential actors. I do think that investors haven't changed their appetite on this information. Neither, well, have regulators. They have a little bit. But a piece that I've been working on this week is about California's climate risk disclosures, which were due to come in on January 1st. A court stayed, which means kind of paused that, after litigation. But that stay came in right at the end of the year when companies had already spent most of the year getting ready for it. And so some companies, a very small proportion of those that were subject to it, have decided to voluntarily submit them anyway. I'm hearing that many more are ready to go. They're just kind of waiting for a signal from the court. In general, it seems to have been a bit of a shrug. Like this information, I mean, the California framework was not that onerous as it was. Very kind of— the regulator was very open-minded about how businesses went about it. Many of them were already doing TCFD, which is the Task Force for Climate-related Financial Disclosures. Many were already doing that reporting anyway. It doesn't seem to have been that big, big a deal either way, to be honest. And that's in the US, where this is more politicized than anywhere else. So I think, you know, the rules of engagement have changed on climate disclosure, some level of climate disclosure. You know, whether it reaches the level of maturity the EU once wanted to see, maybe that's a bit away off. But I think that this is all just kind of set in stone now. It's going to happen. It's just not too loudly.

Yeah, I think that's a really interesting point. I like your sentence that it's a bit of a shrug. And yeah, that does seem to be similarly to what we've seen in the EU around the EU deforestation regulation, for example, even though it's been pushed back now essentially for 2 years because we've had 2 1-year pushbacks, there are still lots of companies that have put in place the regulation because they need to meet, they thought they would have to meet certain targets. They've done the work, they've spent the budget. And so there isn't this wholehearted pushback, as you say. And also the fact that other countries such as China, for example, are coming out with their own disclosure regimes, which may not be mandatory yet, but there is this, as you say, a direction of travel, which even with all the noise noise that's around and companies trying to greenhush more, then there does seem to be a direction of travel that we perhaps can't move away from. And within all that flow, I mean, we've talked about voluntary schemes there like the TCFD. Where do you see kind of AI fitting into this? I mean, do you expect, or when you speak to people, do you get a sense that in the coming years that there will be more either mandatory or voluntary demands for companies to report as part of their ESG reporting on AI sort of related emissions specifically? Do you get any sense of that?

I think the sense I get speaking to investors, but also kind of academics and researchers concerned with the general wider systemic societal impacts of AI, there's very much a desire to know what companies are doing with it. That transparency that you're talking about is really sought after. I think the problem at the moment is that it's essentially regulation. Until it becomes mandatory, most companies won't start disclosing that. And then on top of that, there's the fact that most big tech companies are US firms. And as we've seen, they're very close with the, um, Trump administration in the US. And everything going on with reciprocal tariffs and Trump's threats, even if he eventually withdraws the threats of reciprocal tariffs, I think there's a lot of fear that should a regulator in Europe or any other jurisdiction choose to kind of take on those tech companies and say, you need to tell us what you're doing with this, that then there'll be kind of consequences from the US government. So yeah.

I also wonder how much investors actually want to know because this information, it's probably not going to be that great around AI companies, but you also don't want to miss out on those returns. So is it actually that helpful getting that information right now? Maybe the investor pressure wouldn't be there.

Yeah, no, I think you're right. And I think there is kind of like a fundamental problem at the root of all this, which is that these are like black box systems. And, you know, even the companies themselves don't know how they work. And I think to get that true kind of granular reporting isn't really possible with something like generative AI or an LLM, so a large language model. I think these kind of challenges are really at the crux of it, but That being said, they need to be ironed out and there just needs to be some clarity, I think. I think, you know, investors and the public are looking for signals from regulators about what they intend to do on this or whether we're just going to kind of leave it until, you know, chatbots are talking to chatbots.

Yeah, it was interesting at Davos, the Task Force on Nature-related Financial Disclosures came out with draft guidelines for the tech companies on, yeah, their impacts on nature around AI. So perhaps there will be pressure from elsewhere, I mean, especially in terms I mean, there's a lot of talk of energy use, but obviously water use. The UN came out with its report last month that we're now in an era of water bankruptcy. And so perhaps there will be environmental issues even, or human rights issues potentially coming back to sort of the ICE issues whereby if we're taking people's drinking water so we can have data centres or generative AI, that could perhaps cause other backlashes and push it more from a consumer perhaps, or investor again, point of view, because there will be risk within the system somewhere. Plenty to watch out for. Thank you, both of you. I mean, there's plenty to keep an eye on there. And I think especially in the US context, unfortunately, there's going to be other incidents that we're going to see until this issue resolves or doesn't resolve itself. I mean, Trump seems to have taken a slight step back after the killing of Alex Pretty, but that doesn't seem to have really sort of stopped ICE on the streets. I think they've just been moved elsewhere rather than necessarily—

yeah, they're just regrouping. They sensed the tone and have calmed down a bit, but I'm sure they'll pop up somewhere else soon.

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