When developing a charter, one of the most influential decisions is whether to adopt a principles-based, or commitments-based charter, or a hybrid of both. The choice depends on context, but is often overlooked, and this can lead to problems.
The underlying aims of an industry charters are usually clear. And charters can be effective, but their success depends on factors like enforcement mechanisms, stakeholder buy-in, adoption levels, alignment with industry practice, standards, and regulations.
Some of the benefits of charters include:
- Standardising Practices Across Supply Chains: By setting common standards for quality, ethics, environmental impact, and labour practices, charters help ensure consistency and accountability across the supply chain. This can improve the quality and sustainability of products, reduce risk, and protect brand reputation.
- Encouraging Long-Term Partnerships: Charters can foster a culture of trust and collaboration between companies and suppliers. With clear expectations and a commitment to high standards, suppliers are more likely to establish long-term relationships that can yield mutual benefits, such as shared innovations and cost efficiencies.
- Risk Mitigation and Compliance: Charters often address compliance with standards, and industry-specific regulations. Suppliers who adopt these charters can better avoid legal issues and navigate complex regulatory environments, especially in global supply chains.
- Promoting Ethical and Sustainable Practices: Charters can include environmental and social standards, such as sustainable sourcing, fair wages, and safe working conditions. They can support corporate social responsibility goals and help companies meet stakeholder expectations about ethical practices.
- Improving Operational Efficiency: By following standardised practices, suppliers may reduce waste, improve production processes, and ultimately lower costs. This can be particularly beneficial for industries with high operational and regulatory demands, such as construction, pharmaceuticals, food, and electronics.
Challenges and Limitations of Industry Charters
However, charters do not provide a silver bullet. Not all charters last the test of time and are successful in achieving what they set out to achieve. Common factors include:
- Lack of Enforcement: Charters without robust monitoring and enforcement mechanisms may be ineffective. If there’s no system to verify compliance, some suppliers may not fully implement or follow the standards.
- Variable Commitment Levels: Suppliers and companies may vary in their commitment to the charter. If only some suppliers adhere strictly to the standards, this inconsistency can undermine the overall goals of the charter, especially when there is a cost of compliance.
- Cost of Compliance: Smaller suppliers may struggle to meet the requirements, especially if adhering to a charter involves significant investments in training, technology, or process changes. Without financial support or incentives, they may be less likely to participate, and this can affect competitiveness.
- Complex Global Supply Chains: For industries with global supply chains, enforcing uniform standards across regions can be challenging. Suppliers in different countries may face unique regulatory, cultural, and operational constraints.
- Potential for Greenwashing or "Social Washing": There is a real risk that companies may adopt charters as a marketing tool rather than a sincere commitment to change practices. If they lack enforcement or transparency, charters can sometimes be more about brand image than real impact.
Principles versus Commitments
Whether industry charters should be based on principles or commitments depends on the goals, context, and stakeholders of the industry. Both approaches have distinct benefits and limitations, and often a hybrid model that includes both principles and commitments prove to be the most effective. Here’s a look at each approach:
Principles-Based Charters
Principles-based charters are grounded in high-level values or guidelines, such as behaviours, fairness, transparency, and environmental responsibility. These principles serve as a moral or ethical framework but allow flexibility in how organizations interpret and apply them.
Advantages:
- Flexibility: Principles provide a broad framework that companies can adapt based on their specific context, resources, and capabilities.
- Adaptability: As industries evolve, principles allow organizations to interpret and apply standards in ways that reflect changing practices, technologies, or regulations.
- Encouragement of Innovation: By focusing on values rather than strict rules, a principles-based approach encourages companies to develop innovative solutions to achieve these goals.
Limitations:
- Ambiguity: Without specific commitments, principles can be interpreted differently, leading to inconsistent applications or a lack of measurable outcomes.
- Challenges in Accountability: Principles alone may make it difficult to hold companies accountable, as they often lack specific metrics for tracking progress or compliance.
The UN Global Compact Charter – Principles in Action
The UN Global Charter is a voluntary initiative launched by the United Nations to encourage businesses and organizations worldwide to adopt sustainable and socially responsible policies. It is principles-based, asking companies to align with ten principles related to human rights, labour, the environment, and anti-corruption without prescribing exact actions. It is the largest corporate sustainability initiative globally, with over 12,000 participants from around 160 countries. Although it is voluntary, it establishes a high-profile platform for corporate sustainability, setting expectations for responsible business conduct across industries. However, in terms of commitments and accountability, these only relate to:
- Communicating Progress (COP): Organizations must submit an annual Communication on Progress, detailing actions taken to implement the Ten Principles and progress made toward sustainability goals.
- Engaging in Learning and Collaboration: The UN Global Compact provides access to resources, workshops, and training to help companies meet their goals and exchange knowledge.
While widely adopted, the UN Global Compact has faced criticism for being a "soft law" approach with no legal enforcement, which sometimes allows companies to participate without significant change. However, ongoing efforts aim to strengthen accountability and impact through reporting and transparency initiatives.
Commitments-Based Charters
Commitments-based charters, on the other hand, focus on specific, measurable actions that signatories agree to fulfil. These may include quantifiable targets, deadlines, or reporting requirements.
Advantages:
- Clear Accountability: With specific commitments, organizations can be held accountable for meeting defined goals or standards, enhancing transparency and trust.
- Measurability: Defined commitments provide measurable outcomes, allowing stakeholders to track progress and assess effectiveness.
- Credibility with Stakeholders: Concrete actions demonstrate a clear dedication to change, which may resonate better with stakeholders, particularly in industries facing scrutiny.
Limitations:
- Rigidity: Detailed commitments may lack the flexibility needed to adapt to individual company contexts, market conditions, or technological advancements.
- Implementation Challenges: Companies may struggle to meet commitments if they lack resources, capabilities, or local regulatory support, particularly in complex or global supply chains.
The Science Based Targets initiative (SBTi) – Commitments in Action
The SBTi sets specific, measurable commitments for reducing greenhouse gas emissions, providing clear benchmarks for environmental responsibility. The initiative’s goal is to help organizations reduce their carbon footprint in line with the levels necessary to meet the Paris Agreement’s objective of limiting global warming to well below 2°C above pre-industrial levels, ideally pursuing efforts to limit it to 1.5°C.
The process of setting SBT’s is involves a structured process of:
- Commit: A company formally commits to setting a science-based target by signing a letter of intent.
- Develop: The company develops targets according to SBTi’s criteria and methods, using tools and guidance provided.
- Submit: The company submits its targets to the SBTi for an official review and validation.
- Communicate: Once approved, the company publicly announces its science-based target, sharing progress transparently.
- Disclose and Act: The company works to implement its targets, tracks progress, and reports on it annually.
However, one of the issues faced by this type of Charter is that whilst SBTi standards exist, reporting on commitments relies on transparent, high quality, and consistent reporting across complex sectors. Certain organisations and industries can find it challenging to set and meet meaningful targets due to interactions and whole-system factors.
A Hybrid Model: Principles with Actionable Commitments
A hybrid approach that combines principles with commitments can be the most effective. In this model, a charter lays out overarching principles but includes specific commitments that outline expected behaviours or targets.
This allows for high-level guidance along with the accountability that comes from clear actions. For example, separating out specific commitments from enabling and inhibiting behaviours – whilst retaining a long-term overarching purpose – provides charter signatories flexibility in how the specific commitments can be met.
Guidelines and codes of practice can be developed to help companies navigate their own way on how to deliver the charter commitments. But as with principles-based charters, communicating progress and engaging in learning and collaboration are necessary to share what works well, what could be done better, and help set expectations.
Benefits of a Hybrid Approach:
- Balanced Flexibility and Accountability: Principles allow flexibility, while commitments ensure measurable outcomes.
- Long-Term Relevance with Short-Term Goals: Principles provide a long-term vision, while commitments can be regularly updated or tailored to respond to industry changes.
- Encouragement of Best Practices with Accountability: This model promotes industry-wide standards but allows for innovation and adaptation.
So What?
When developing a charter as a means of enabling change, a hybrid approach can be the most effective, as it combines the flexibility and inspiration of principles with the accountability and clarity of specific commitments.
Establishing a clear connection between the Charter’s purpose, principle-based enablers (e.g. behaviours) and specific commitments can create a balance between aspirational goals and practical, measurable steps. This can make it easier for industry participants to commit and stakeholders to trust in the charter’s impact.
And when it comes to specifying commitments, gaining buy-in is often easier when the meeting of commitments can be measured. Complexity often leads to grey areas where commitments can be met in some instances, but not in others. A constant measure of progress, or maturity, can leave the door open to gaining buy-in over the longer-term..
Rather than exclude charter signatories based on non-compliance, a more constructive approach is to build on shared progress and learning, and fostering collaboration.