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By Paul Wieshammer, Emma Revilliod, Valentin Pugnère, Irene Sánchez & Dr. Kristjan Jespersen

Social sustainability offers developers, architects, and entire cities the opportunity to stand out in the urban development market. By creating outstanding neighbourhoods that meet people’s tangible and intangible needs, developers can not only enhance their ethical reputation, but also create financial value. However, social sustainability is a complex and multifaceted concept that is challenging to measure. To address this challenge, our group of student researchers developed the Urban Social Sustainability Measurement Tool, which provides a way to integrate the need to measure social sustainability in both the planning phase and after the neighbourhood is operational.

This tool was developed in the light of a market analysis we conducted in the Danish urban development sector, which involved both secondary data analysis and semi-structured interviews with twelve representatives of seven stakeholder groups: developers, the public sector, social housing, practitioners, pension funds, researchers, and certification bodies. The analysis showed that interest in the project was high across all stakeholder groups, and that four groups could be defined as potential users: real estate developers, pension funds, the public sector, and social housing. The tool was specifically developed to meet the needs of these potential users, with a high level of adaptability to each of their own criteria but also to each neighbourhood concerned.

The Urban Social Sustainability Measurement Tool is based on Life Cycle Assessment (LCA) and Multi-Attribute Value Theory (MAVT), and aims to measure urban social sustainability which we have defined as “achieving human well-being by meeting people’s tangible and intangible needs.” The tool’s framework classifies social sustainability into general factors, referred to as “categories,” and more specific factors, referred to as “indicators.” Each indicator is directly linked to one or more categories, similar to the structure used in LCA.

The Urban Social Sustainability Measurement Tool assigns sub-indicators [Price; Subsidies; Mixed Tenure; …] to each indicator, which are then measured to determine their performance. The sub-indicators are then assigned values between 0 and 1 depending on their proximity to the upper and lower limits. For instance, in the case of a minimisation, the closer the sub-indicator is to the lower limit, the more favourable it is considered to be. The values of the sub-indicators are weighted and summed to create a value for each indicator. The indicators are then weighted and summed to create a value for each category, and the sum of all categories gives the Urban Social Sustainability Score (URSUS). This scoring system provides a quantitative assessment of social sustainability, which can be used to compare different urban development projects and identify areas for improvement.

In order to accurately quantify social sustainability, the tool highlights the importance of the participation process throughout the planning phase. This process should be of exceptional quality, especially in redevelopment projects. This means that people from all affected strata of society must have an equal say in this phase. The results of the consultation must be incorporated into the development plans. As this factor is of high importance, the requirements for it are particularly high in the proposed model.

The Urban Social Sustainability Measurement Tool framework is a valuable contribution to the field of urban development, as it provides a standardised and measurable way to quantify social sustainability. The tool has the potential to make a significant impact on urban development processes by allowing developers to compare projects and make data-driven decisions to create more socially sustainable urban environments.

In order to foresee the next steps for our tool, we would like to highlight a few points that we believe are crucial to further developments:

• Real estate developers and pension funds are most likely to participate in the project at an early stage.
• For such a project to be successful, the tool needs to be accepted by the vast majority of the market, especially the public sector. If municipalities are brought on board, the future development of cities will benefit.
• Since social sustainability concerns society as a whole, social housing organisations and researchers must be heard in the process.
• As a result, our tool focuses on one key feature: “adaptability”. This is essential to ensure a comprehensive and effective measurement of each specific suburb in all its diversity.
• The concept of social sustainability is constantly evolving, which implies that indicators and categories must be periodically rewired to ensure that the tool is updated and accurately represents the current needs of society.

About the authors

Paul Wieshammer is currently pursuing a Master of Science in Management at the University of Mannheim. He is currently focusing his studies on the field of industrial decarbonisation, specifically within the semiconductor industry. He holds a Minor in ESG from the Copenhagen Business School, and has previously worked as an ESG analyst, advising institutional investors.

Emma Revilliod is currently pursuing a M.Sc. in Business and Development Studies at Copenhagen Business School. She holds a BSc. in Business Administration with a major in Applied Economics from HEC Montreal. She completed her BSc. with a minor in Political Science at Mc Gill University.

Valentin Pugnère is currently completing a Master in Management at EM Lyon with a specialisation in corporate strategy. He recently spent a semester at CBS where he studied political science and sustainable strategies. He is now preparing his Master’s thesis on the French State’s strategies to influence corporate governance notably in the scope of the national low-carbon strategy.

Irene Sánchez Clemente is part of a double master’s degree programme between the Polytechnic University of Valencia and the Technical University of Denmark. She is an industrial engineer specialising in environmental management. She also took sustainable-related courses at CBS last semester as part of her education, and she is currently developing her MSc thesis about the decarbonisation of the logistics sector.

Prof. Kristjan Jespersen is an Associate Professor in Sustainable Innovation and Entrepreneurship at the Copenhagen Business School (CBS). Kristjan Jespersen is an Associate Professor at the Copenhagen Business School (CBS). As a primary area of focus, he studies the growing development and management of Ecosystem Services in developing countries. Within the field, Kristjan focuses his attention on the institutional legitimacy of such initiatives and the overall compensation tools used to ensure compliance. He has a background in International Relations and Economics.

By Emily Maria Goehlmann, Kathleen Lameter & Prof. Kristjan Jespersen

Startups such as Airbnb and Spotify shaped our society in multiple ways – from how we book and rent out flats to how we access our favorite music. Their disruptive power is a typical characteristic of a venture case. The disruption caused by such firms can be used for sustainable development, too. The movement from unicorns to zebras is increasingly acknowledged by investors on a global scale – a movement in which Venture Capital (VC) plays an important role.

Currently, VC focuses almost exclusively on profitability and financials. The study underlying this post found that sustainability plays – if even – a minor role in investment decision-making. However, Venture Capitalists (VCs) are increasingly pressured by society, regulators, and their limited partners to implement sustainability and ESG (Environmental, Social, and Governance issues) into their investment processes. Thus, one can see a paradoxical situation as sustainable New Ventures (NVs) are facing challenges in raising money, while investors are supposedly increasingly looking into placing sustainability cases in their portfolios.

But why are sustainability and ESG not implemented more into VC investment decisions? The theme of sustainability and ESG in VC and NVs is a field of great uncertainty. Through interviewing multiple VCs, founders of NVs, and specialists with roots in both areas, the authors found that there are five hindrances to the integration of sustainability:

1. the stark differences in understanding linked to sustainability;
2. the lack of resources for implementation;
3. the lack of guidance on how to implement;
4. the lack of knowledge on sustainability and ESG in VC in general;
5. the general challenge of measuring ESG issues.

The study found the hindrances to be interconnected and driving each other. These hindrances impact the sensemaking of VCs when dealing with NVs, and impede the implementation of sustainability and ESG.

But how does it come to the point that sustainable NVs generally tend not to gain VC funding? The study constructed a framework based on research and adapted it through empirical data to the sustainability context. The framework in table one depicts three main points directly linked to the hindrances which impede the funding of sustainable NVs through VCs:

Table 1 – Framework assessing VC sensemaking linked to sustainability in NVs.

Firstly, due to the differences in understanding of what sustainability is, coupled with a lack of guidance, each VC has its individual sustainability expectations. The heterogeneity of expectations complicates the funding search of sustainable NVs, as they have to navigate the general financially driven VCs and their differing sustainability expectations. These varying sustainability expectations lead to NVs needing to adapt their identity with each VC in the hope of gaining funding. Thus, every VC has different sustainability expectations which impact NVs and the way they portray themselves.

Secondly, these differing sustainability expectations also impact the VC sensemaking of a business case. Sensemaking is the individual weighting of factors seen as “normal” and “different”, in which the individual sustainability expectation of a VC plays a major role. A business case is only seen as plausible, and thus legitimate to fund if the individual weighting is acceptable. The study found that a NV’s sustainable business case can be excellent and plausible in the eyes of one VC, but inadequate in the eyes of another. This uncertainty of sustainable business cases, resulting from a lack of guidance and knowledge of VCs on sustainability, impacts VCs’ sensemaking as sustainability is perceived as something “different”. In contrast, financial information is highly regulated, and a shared understanding between VCs makes it “normal”. Thus, differing sustainability expectations and sustainability being seen as “different” impedes the funding search for sustainable NVs. However, it also shows the need for sustainable NVs to balance sustainability and financials.

Thirdly, the study found a general “looking good” vs. “doing good” debate hindering the implementation of sustainability and ESG in VC and NVs. Questions such as “Will people think this is greenwashing?” or “Will society be questioning me if I have nothing green in my portfolio?” impede the judgment of plausibility of a business case, further hindering sustainable NVs in gaining VC funding. Thus, negative narratives around the credibility of sustainable solutions and increasing pressure to show sustainability considerations impede the assessment of sustainable NVs.

The study’s authors argue that these three findings, paired with the five identified hindrances, could be the reason for the paradoxical situation of VCs claiming to want to fund sustainable cases, but sustainable NVs showing a lack of funding. They further argue that if no changes are made to this complex environment, then it will continue to be hard for sustainable NVs to prove that they can do well. Finally, the authors argue that the hindrances must be dealt with to create a universal understanding of sustainability in VC and NVs to enable more investments into sustainable NVs.

About the authors

Emily Maria Goehlmann recently graduated with an M.Sc. in Diversity and Change Management from Copenhagen Business School. ESG and startups are some of her core interests – which have merged into the Master thesis underlying this blogpost. She now works as an Associate for the Sustainability Consultancy Position Green in Copenhagen and worked priorly as an ESG Associate for the Danish Venture Capitalist Dreamcraft.

Kathleen Lameter has recently graduated with an M.Sc. in Management of Innovation and Business Development from Copenhagen Business School. During her studies, she discovered her passion for sustainability, which led her to pursue a Minor in ESG. Kathleen now works as an ESG and Sustainability Specialist at the Abacus Medicine Group in Copenhagen.

Prof. Kristjan Jespersen is an Associate Professor in Sustainable Innovation and Entrepreneurship at the Copenhagen Business School (CBS). Kristjan Jespersen is an Associate Professor at the Copenhagen Business School (CBS). As a primary area of focus, he studies the growing development and management of Ecosystem Services in developing countries. Within the field, Kristjan focuses his attention on the institutional legitimacy of such initiatives and the overall compensation tools used to ensure compliance. He has a background in International Relations and Economics.

By Dr. Kristjan Jespersen, Prof. Jennifer Lee, and Lise Pretorius

Conversations around sustainability have consistently emphasized that boards of directors can easily facilitate or delay the green transition in corporations. In the earlier years, the question of interest had been how to win the boards’ support when integrating sustainability goals into business, because many boards viewed sustainability as a barrier to maximize profit. Recently, with consistent evidence that sustainability can directly improve long-term profitability of firms, investors and executives successfully have gotten the board behind sustainability efforts.

Yet, ensuring good ESG performance requires not just the support of the boards, but also their expertise in both the science and regulatory landscape of sustainability. A board with suitable expertise can improve ESG performance by exercising proper oversight over existing ESG policies; advising on formulation and execution of new practices; and reorienting the business per fast-changing expectations from stakeholders and regulations. Currently, companies are facing unprecedented needs for ESG-competent boards for two reasons. First, many ESG evaluation systems are updating their evaluation criteria to be more stringent and scientifically rigorous. To maintain positive ESG ratings and thus remain credible in the eyes of investors, it has become imperative for firms to have boards with a tight grasp of the science behind the maturing criteria and methodologies behind ESG evaluation systems. Second, companies are under increasing pressure from new initiatives emerging at EU-level that highlight the role of the boards. For example, the upcoming Corporate Sustainability Due Diligence (CSDD) regulation explicitly articulates that the boards of directors should be assessed and compensated based on their contribution to ESG outcomes. This means that companies need appropriate tools to gauge the board’s performance regarding ESG outcomes, as well as to fully harness the board’s ESG competency. Other EU regulatory initiatives, such as Green Deal and EU Taxonomy, also highlight how the expertise of the board is crucial in decarbonizing business models, managing social impacts, and increasing resilience against climate change, urging companies to form ESG-competent boards.

The problem we face

Despite such pressing needs, investors and executives are lacking methodologies and data to understand a board’s ability to tackle the sustainability challenges a company faces. To date, few have considered the notion of “ESG readiness” beyond the board-level quality of oversight. For example, major global ESG data providers such as Refintiv, MSCI, and ISS, assess boards’ ESG-competency simply based on whether a sustainability committee exists, whether the board publishes sustainability reports, or in a few cases, whether ESG performance is considered for incentive plans. While such factors are essential components to ensure an ESG-ready board, it is unlikely that an existence of a committee, report, or remuneration criteria are sufficient to gauge a board’s ability to understand and advise on ESG policies and material issues. In fact, it is the individual directors’ capacity to bring in the knowledge and experience needed to ask the right questions, give advice, and navigate through compliance. To achieve a more fine-grained understanding of a board’s ESG readiness, therefore, understanding the competencies of individual directors–and the board in aggregate – may prove to be valuable.

Finding a way to gauge a board’s sustainability competency

A research initiative by scholars at Copenhagen Business School, along with Matter, a Danish fintech company, is inspired by this insight. Researchers are developing a tool that can help understand boards’ ESG competency by focusing on the credentials of each director. The research team built a dataset on the profiles of all board members on all publicly traded companies in Denmark and all companies listed in the major stock indices in Finland, Norway, Sweden, Germany, and Switzerland. Directors are assessed based on their education background related to sustainability topics and prior professional experience in sustainability-related positions, committees, and organizations. Individual ESG-competency scores are then aggregated based on the methodology that considers the director’s voice within the board (e.g., the director’s age and tenure on the board relative to the rest of the board), as well as the distribution of the ESG-competency within the board (e.g., a board in which majority directors score above-average in ESG-readiness is considered more capable than a board in which a few directors score extraordinarily high in ESG competency). Preliminary analysis on the collected data revealed that boards are still ill-equipped with the requisite ESG expertise for their industries. Our data demonstrates that, for example, over 20% of the companies lack an ESG-competent board, and close to 30% of the companies have directors with minimal ESG competency . Only about 3% of companies have access to a rich source of ESG competence—defined as having more than one-third of the board equipped to tackle ESG challenges with a diverse range of ESG competence among the directors. The data also revealed that there is a substantial variation across sectors – Customer services industry having the lowest ESG credentials among directors, and Biotechnology and Pharmaceuticals sector having the highest by 2.5 times – suggesting that we may need sector-specific approaches to establish ESG competent boards. 

So what?

In the face of the growing recognition that the board plays a crucial role in driving companies’ sustainability transitions, this methodology provides useful solutions for both companies and investors. Companies can leverage this tool to:

• Take a pulse check on the ESG competencies required of the current board. Currently, companies lack tools to assess the state of their boards’ ESG competency. This method gives a quick overview of the current ESG credentials a board needs, and helps companies understand whether the board is up for future sustainability challenges.
• Maximize the potential ESG capabilities of the board by deliberately planning board formation. Once companies assess the current state of the board’s ESG competency, they can use this tool to future-proof the board for their ESG needs and challenges. Companies can recruit talent for the specific areas they need expertise for, while diversifying the board to cover a wide range of ESG issues. A wide application of this tool may also help companies overcome the limited talent pool in recruiting directors, as they can now easily identify and engage new talent based on the clearly defined dimensions.
• Ensure alignment with regulatory requirements which mandate that individual directors be assessed and compensated based on their contribution to ESG outcomes. Compliance with initiatives such as CSDD requires substantial learning and adjustments within company governance. With this tool, companies can get a head start on aligning the business with the regulations by implementing the director-level point of view. While companies will need to come up with a system to identify each director’s contribution to the companies’ ESG outcome, the data points on directors’ expertise lay out the foundation to assess their contribution.
• Rely on a methodology and dataset that is transparent and applicable to all sectors. In evaluating and reporting on ESG efforts and compliance, investors are increasingly looking for datasets and methodologies that are rules based and transparent. This is critical in ensuring that insights on companies can be understood and explained to financial regulators and wider stakeholders. This methodology applies to companies across all sectors, while at the same time incorporating sector-specific criteria for material issues, such that key methodological and aggregation choices, can be clearly understood and integrated by finance sector stakeholders.
• Integrate a unique datapoint into ESG assessments of companies’ transition plans. Understanding what boards can provide in guiding companies green transitions is important for investors to predict whether transition plans are credible. This tool helps investors understand whether the companies are properly equipped to set the right targets, advise on the necessary strategic changes, and to re-imagine business models where necessary given the set of sustainability challenges changing the landscape for each sector.
• Ensuring that ESG competencies of the board maximize the company’s ability to meet commitments and targets, and identify areas of engagement where relevant. In the long-run, investors can use this tool to maintain and improve the ESG competency of the board to ensure long term plans are delivered. With every addition and removal of a board member, investors now have a simplified way of understanding how the board’s ESG competency changes, and of urging the firm to form the board with appropriate expertise.

About the authors

Prof. Kristjan Jespersen is an Associate Professor in Sustainable Innovation and Entrepreneurship at the Copenhagen Business School (CBS). Kristjan Jespersen is an Associate Professor at the Copenhagen Business School (CBS). As a primary area of focus, he studies the growing development and management of Ecosystem Services in developing countries. Within the field, Kristjan focuses his attention on the institutional legitimacy of such initiatives and the overall compensation tools used to ensure compliance. He has a background in International Relations and Economics.

Lise Pretorius is the the Head of Sustainability Analysis at Matter. She is an environmental economist whose work is about merging the traditional fields of economics, finance and business with innovations in sustainability and systems thinking. Her focus is on the role of investment in creating systemic change, making the business case for corporate sustainability, and the potential for “beyond GDP” measures of progress to create an economic model more capable of dealing with 21st century challenges.

Prof. Jennifer Lee is an assistant professor in Organizations, Strategy, and International Management at the University of Texas at Dallas. Her work is in the area of corporate governance, focusing on the external pressures firms face such as the threat of shareholder activism.

By Prof. Kristjan Jespersen

ESG performance is an increasingly important topic for companies, investors, and stakeholders. The recent introduction of regulations that mandate increased oversight on the diversity, skills, and fiduciary duty of corporate boards – such as the EU regulations Corporate Sustainability Due Diligence Directive (CSDD) and the Corporate Sustainability Reporting Directive (CSRD) – make it particularly important today to discuss corporate boards’ competence in ESG.

We are thrilled to announce the launch CBS’ Nordic ESG Lab. This website and the work carried out by the Nordic ESG Lab is to contribute to this spirit of experimentation. Ultimately we wish to support, in a small fashion, the development of new ESG tools, new research agendas and adoption and application of such tools within the business and financial worlds.

Through this lab, we offer a platform where research and dissemination of leading ESG trends is explored. We link practice with research on all topics relating to Social Responsible Investing and ESG. Specifically, the Nordic ESG Lab provides insight on these topics through our blog, promotes events on ESG, as well as showcases ongoing ESG research and teaching at CBS.

This is an open forum – aimed at exploration, building research agendas and testing important ESG Concepts.

We invite members to follow to join our newsletter mailing list to stay up to date with new blogposts, events and more!

About the authors

Prof. Kristjan Jespersen is an Associate Professor in Sustainable Innovation and Entrepreneurship at the Copenhagen Business School (CBS). Kristjan Jespersen is an Associate Professor at the Copenhagen Business School (CBS). As a primary area of focus, he studies the growing development and management of Ecosystem Services in developing countries. Within the field, Kristjan focuses his attention on the institutional legitimacy of such initiatives and the overall compensation tools used to ensure compliance. He has a background in International Relations and Economics.