Regulation & Public Policy

Sustainability Needs Smart Mix of Regulatory & Voluntary Tools

While new sustainability legislation continues to emerge, voluntary tools remain a clear support path for companies and producers.

Sponsored Content | This article is sponsored by ISEAL Alliance | By ISEAL Alliance | Published 4 months ago | About a 7 minute read

Image: courtesy of ISEAL

For the last two years, experts interviewed for GlobeScan’s Sustainability Leaders Survey have ranked legislative action as the single most important factor shaping the sustainable development agenda. And it’s true: Sustainability regulations emerging across multiple markets are increasing legal scrutiny around what businesses report, conditions in their supply chains, and the consumer claims they make.

Civil society organizations and many progressive businesses are clearly welcoming this regulatory trend. It helps set a level playing field for companies, and forces those lagging behind to start taking environmental and social issues seriously. Given the urgency of the crises we face, these laws present an unmissable opportunity to accelerate and scale action and make sustainable supply chains the norm.

But as recent anti-regulatory sentiments on both sides of the Atlantic show, policies can change with shifting political winds. And while stronger government action on sustainability is a must, policy alone cannot deliver the global transformation we need. So, as a sustainability movement, do we want to put all our eggs in the regulatory basket or look to implement a smart mix approach of regulatory and voluntary tools?

The continued case for voluntary sustainability systems

For nearly 40 years, voluntary tools such as standards and certification schemes have helped define, promote and reward good practices across various supply chains, sectors and regions. Emerging in the early 1990s, these initiatives responded to market failures and regulatory gaps where businesses neither accounted for their social and environmental impacts nor were held accountable by law or the market.

More than just a label or logo, many tools have evolved into comprehensive sustainability systems driving change throughout supply chains. For businesses, financial institutions and policymakers, they are invaluable for managing risk, codifying good practice and creating value for all actors involved.

Independent research demonstrates that sustainability systems have positive impacts for people, nature and businesses themselves. And they continue to grow, with recent data showing a 13.7 percent increase in the agricultural area certified against major sustainability standards.

Credible sustainability systems are helping to transform key markets and sectors – but voluntary tools alone can’t bring about the systemic changes and rapid scaling of good practice we need to tackle all the sustainability challenges we face. And that’s precisely because their adoption is voluntary: Without mandated regulation, there will always be businesses that place (short-term) profit before people and planet.

The new wave of sustainability legislation

The nature and scale of new sustainability regulations is unprecedented. In the EU alone, new legislation is being rolled out in relation to supply chain due diligence, sustainability reporting, tackling greenwashing, and banning products linked to deforestation and forced labor. And despite recent attempts to roll back such regulations, the direction is clear.

Other major markets are following suit – China, for example, is phasing in mandatory sustainability reporting and has recently published its corporate sustainability disclosure standards. India has mandated ESG reporting for the top 1000 listed companies and issued guidelines prohibiting greenwashing and misleading environmental claims. South Korea has just reintroduced its Corporate Human Rights and Environmental Due Diligence Bill, the UK is ramping up action on forced labor, Canada is passing laws to tackle greenwashing … the trend is clearly global.

So, if governments are tightening requirements and making good practice mandatory, are voluntary tools still relevant? Absolutely! Perhaps more so than ever. Here are just a few reasons:

Going beyond the minimum

Legislation sets a floor – but sustainability standards and the businesses they certify continue to raise the bar. Rather than simply complying with minimum legal requirements, credible sustainability systems are committed to continual improvement. They are also regularly revised, helping businesses to move with the times and supporting innovation.

Wages provide an example. Regulation may require that workers receive a statutory minimum wage, but many sustainability systems go beyond this — promoting living wages and living incomes in supply chains through initiatives including the Global Living Wage Coalition and the Living Income Community of Practice.

Facilitating effective implementation

Simply passing legislation is no guarantee that it will be applied and enforced effectively. After all, child labor and forced labor have long been prohibited – yet still find their way into global brands’ supply chains. Laws must be practical and implementable to be impactful.

Voluntary sustainability systems have decades of experience in putting sustainability into practice – not just with brands and retailers but also, crucially, with farmers, foresters, fisheries and factories across the globe. This experience will be invaluable in helping policymakers design and implement effective legislation and supporting businesses to operationalize it.

Supporting regulatory readiness

Even businesses that support sustainability legislation are wary of the increased compliance requirements from reporting, due diligence and other mandatory measures. But companies that are already working with sustainability systems will have done much of the groundwork.

Credible sustainability systems already have tools and mechanisms in place that can support businesses to meet their new legal responsibilities, from providing assurance of compliance with national laws to making and managing credible claims. Many voluntary systems have set standards that meet or go beyond what’s required in legislation, and systems that follow the ISEAL Code of Good Practice will already be adopting good practice in many areas.

While voluntary tools cannot and should not be a green lane for companies to meet their own legal requirements, they are a clear support path for companies and producers to meet new requirements.

From compliance to driving inclusive impact

While new regulations are increasing legal scrutiny on business actions, advancing on sustainability cannot be reduced to a tick-box exercise. A purely compliance mentality may cause businesses to narrow their focus to their immediate supply chain, rather than addressing broader issues within their industry or the landscapes they source from. They may even decide that the costs and challenges of compliance mean sourcing from smaller producers is no longer worthwhile.

In the palm oil sector, for example, many of the smallholders who produce around 35-40 percent of global supply sell their produce to local intermediaries in transactions that are rarely formally documented. That makes it challenging to meet the strict requirements of the EU Deforestation Regulation (EUDR), which demands full traceability back to the farm plot. The simplest solution for EU operators would be to switch to sourcing from large plantations and cut out the smallholders – decimating livelihoods and removing the incentives and support smallholders need to increase production sustainably without converting more forest.

Sustainability systems such as the Roundtable on Sustainable Palm Oil (RSPO) are working to strengthen supply chain traceability to support smallholder inclusion. This will require investment in capacity-building and collaboration throughout the value chain. It’s vital that brands stay engaged with voluntary initiatives like this – which in turn can help to improve the way legislation is designed and implemented.

Ongoing commitment

The commitment of progressive businesses to go above and beyond what the law requires remains critical. Even as new legislation comes into force, we’re seeing attempts to roll back regulation on both sides of the Atlantic – despite opposition from leading companies and investors.

Ultimately, neither voluntary action nor regulation alone is sufficient to meet today’s sustainability challenges. With just five years remaining to meet the UN Sustainable Development Goals and growing urgency around meaningful environmental and social action, we need every tool available.

Discover how credible sustainability systems can drive meaningful and ambitious sustainability progress.