CSR Main Concepts
CSR Fad or reality
• Basic Information
• Quotations from Practitioners
What CSR is all about?
• Basic Information
• Reading
CSR Main Components
• Basic Information • Case Studies
Triple Bottom Line
• Basic Information • Readings • Quotations
Increased Importance of CSR
• Basic Information • Case Studies • DataBenefits of CSR
• Basic Information • Case Studies • ReadingsSocially Responsible Investment
• Basic Information • Readings • Case Studies • Data
CSR Fad or Reality?
We have to choose between a global market driven only by
calculations of short-term profit, and one which has human face.
Between a world which condemns a quarter of the human race to
starvation and squalor, and one which offers everyone at least a
chance of prosperity, in a healthy environment. Between a selfish
free-for-all in which we ignore the fate of the losers, and a future in which
the strong and successful accept their responsibilities, showing global
vision and leadership.
Kofi Annan, UN Secretary-General January 1999
Leaders, opinion makers and practitioners from the private and public sector, civil society, international organizations, and media from all over the world are finding themselves increasingly exposed to the below mentioned types of questions and dilemmas.
Is CSR a new flavor of
the month?
Is the business of business business?
Companies should focus on making
profits while government should
regulate companies to be responsive
to social and environmental
responsibility…
Is Milton Friedman right?
“There is one and only one social
responsibility of business – to use
its resources and engage in
activities designed to increase its
profits.”
Is Professor Arlich Steger from IMD right?
Companies should aim for “responsible
shareholder-value optimization”: their first
priority should be shareholders’ long-term
interests, but with that constraint, they
should meet whatever social or
environmental goals the public expects of
them.
Is the dilemma: “When
money and morality
clash, what should a
company do?” a real
one?
Selected Quotations by CSR Practitioners
Business
“CSR is not a cosmetic; it must be rooted in our values. It must make a difference to the way we do our business.”
-- Phil Watts, Group Managing Director Royal Dutch/Shell Group
“Corporate citizenship is our global commitment, Our knowledge and our solutions create a better world.”
-- Siemens AG, HQ in Germany
“AT&T understands the need for a global alliance of business, society and the environment. In
the 21st century, the world won’t tolerate business that don’t take partnership seriously, but it
will eventually reward companies that do.”
-- C. Michael Armstrong, Chairman & CEO, AT&T
Civil Society
“Social responsibility is neither a fad nor an optional extra. The interest in it is reflective of a deeper change in the relationship between companies and their stakeholders, including consumers. Faith in the benefits of profits to consumers has halved since the Seventies, as a viable basics of a relationship, that faith has been replaced by a desire to see companies acting as active and responsible citizens. Healthy business requires a healthy community, and should be contributing to its creation and maintenance.”
-- Steward Lewis, Measuring Corporate Reputation, 1999
“Global corporate social responsibility entails managing effectively the company’s actual and potential environmental and social impact on the communities in which the firm operates and on society as a whole.”
-- David Grayson, President of Business in the Community in Great Britain
“The principles for global corporate responsibility call on companies to base their corporate policies on a vision of themselves as one of many stakeholders in the global community and to set high standards of conduct in relation to their employees, the environment, and the communities in which they operate.”
-- Reverend David Schilling, Director of Global Corporate Accountability Programs for the New York based Center of Corporate Responsibility.
International Organizations
“Companies are realizing that it is in their business interest to ‘ do the right thing’ everywhere
they operate. Global firms are keenly aware that their long-term investment goals can only be achieved within a stable, healthy and free of social and financial environment. But companies alone cannot solve the challenges associated with social responsibility. They must work in cooperation with governments, civil society groups, development institutions, and citizens.”
World Bank
“ Corporations have a social responsibility and moral duty to use the power of markets to make globalization a positive force for all”
United Nations
“View on corporate responsibility has contributed to mounting pressure on business to
demonstrate its social accountability, especially those multinationals which operate in politically and environmentally sensitive regions of the world”
The World Business Council for Sustainable Development
“I believe that it is part of building good sustainable business to help establish safe, secure, stable and peaceful societies. Business thrives where society thrives”
-- Peter Sutherland former Director-General of the WTO, Co-chairman of BP-Amoco, Chairman of Goldman Sachs International
Media
“Our position as the world’s leading media and entertainment company could not have been reached- and could not have been sustained-solely from business success. It rests equally on our tradition of social responsibility and community involvement. At the core of this enterprise is the determination to make a difference as well as a profit.”
-- Gerald Levin, Chairman and CEO, Time Warner, Inc.
What is CSR All About?
Although the concept of CSR has been developing since the early 1970s, there is no single, commonly accepted definition of CSR. Below we provide some examples of CSR definitions.
"
CSR is defined as operating a business in a manner that meets or exceeds the ethical, legal, commercial and public expectations that society has of business. CSR is seen by leadership companies as more than a collection of discrete practices or occasional gestures, or initiatives motivated by marketing, public relations or other business benefits. Rather, it is viewed as a comprehensive set of policies, practices and programs that are integrated throughout business operations, and decision-making processes that are supported and rewarded by topmanagement." Source: Business for Social Responsibility (http://www.bsr.org)
"CSR is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large. (The above definition was developed in 1998 for the first WBCSD CSR dialogue in The Netherlands.)"
"CSR is a public movement, which has gained more momentum as citizens demand corporations to be accountable for their impacts. Consumers, investors and employees alike are recognizing the power held by corporations and efforts are being made on several levels to create global change with the hope that earth will become a better place." Source: CSR Wire
“CSR is the concept that an enterprise is accountable for its impact on all relevant stakeholders. It is the continuing commitment by business to behave fairly and responsibly and contribute to economic development while improving the quality of life of the work force and their families as well as of the local community and society at large.” Source: European Union
“CSR is a term describing a company's obligation to be accountable to all of its stakeholders in all its operations and activities. Socially responsible companies consider the full scope of their impact on communities and the environment when making decisions, balancing the needs of stakeholders with their need to make a profit.” Source: Ethics in Action
“CSR is concerned with treating the stakeholders of the firm ethically or in a socially responsible manner. Stakeholders exist both within a firm and outside. Consequently, behaving socially responsibly will increase the human development of stakeholders both within and outside the corporation.” Source: Michael Hopkins: A Planetary Bargain: CSR Comes of Age (Macmillan, UK, 1998)
CSR generally refers to:
1. a collection of policies and practices linked to relationship with key stakeholders, values, compliance with legal requirements, and respect for people, communities and the environment; and
2. the commitment of business to contribute to sustainable development, commonly understood as sustainable development is the ability of the current generation to meet its needs without compromising the ability of future generations to meet theirs.
“Corporate Citizenship” which is based on the concept of the corporation as a citizen, is also frequently used while referring to CSR, and is sometimes interchangeably used.
The interpretation of CSR one makes, influences the dialogue between governments, private sector and civil society. This results in different implications among various parties regarding the legitimacy, obligations and impact of corporate social responsibility standards. For example, one has to be careful in understanding and defining the term “CSR” because it is sometimes
mistakenly equated with either corporate philanthropy or simply compliance with law. Since mid-90’ the business sector has gradually engaged into many actions, which have been traditionally assigned to the sphere of responsibility of the government, yet due to its incapacity, business has taken the lead. Participation in such projects has revealed business as a strategic partner in the process of development, in close cooperation with the government and international institutions.
What is CSR all about? - Suggested Readings
¾ Corporate Citizenship
¾ A Stakeholder Framework for Analyzing and Evaluation Corporations
¾ Business as Partners in Development: Creating Wealth for Countries, Companies and Communities
¾ Building Competitiveness and Communities: How World Class Companies are Creating Shareholder Value and Societal Value
¾ Creating the Enabling Environment for Public-private Partnerships and Global Corporate Citizenship
Corporate Citizenship
Corporate citizenship is based on the concept of the corporation as a citizen; although not identical with the concept of personal citizenship, still it clearly recognizes that business has right and responsibilities that go beyond short-term profit maximization.
Further information, see: M. McInstosh, K. Jones, G. Coleman, D. Leipziger, 1998, “Corporate Citizenship,” London: Financial Times Management; D. Logan, D. Roy and L. Regelbrugge, 1997, “Global Corporate Citizenship – Rationale and Strategies,” Washington D.C.: The Hitachi
Foundation; and C. Marsden, and J. Andriof, 1998, “Understanding Corporate Citizenship and How to Influence It,” Citizenship Studies 2, no.2.
A Stakeholder Framework for Analyzing and Evaluation Corporations
“Conclusions are presented from a 10-year research program, the purpose of which has been to develop a framework and methodology, grounded in the reality of corporate social performance. The measurement of corporate success has traditionally been limited to the satisfaction of and creation of wealth for only one stakeholder, the shareholder. Stakeholder is not synonymous with shareholder. The economic and social purpose of the corporation is to create and distribute increased wealth and value to all its primary stakeholders groups…”
Source: M. Clarson, The Academy of Business Review, 20 (1): 92-117
Business as Partners in Development: Creating Wealth for Countries, Companies and Communities
“In the era of economic globalization, political transition and technological transformation, rapid changes are taking place which are bringing more than three billion people into economies operating on market principles. The private sector has become the main engine of growth and development, something which has raised a number of new and fundamental questions about the role of the private sector in sustainable development , in particular for multinational companies: Can profit-driven companies be expected to play a leadership role in sustainable development? What is the role and interest of business in facilitating greater economic and interest of business in facilitating greater economic participation by people on the margins of society? How can business contribute to improve the quality of, and participation in, child-care, education, health care, training and environmental protection? What is expected of business in setting ethical standards, enforcing laws, tackling crime and corruption and building good governance, all of which can contribute to successful business?”
Source: PSDP, PWBLF, and World Bank
Building Competitiveness and Communities: How World Class Companies are Creating
Shareholder Value and Societal Value
“The subject of corporate leadership and reputation in a global economy is in the spotlight as never before. The role of private enterprises and their leaders will pay an increasingly pivotal role in shaping economic, social and environmental progress around the globe. The way in which these enterprises and their leaders will approach this role will have important implications for everyone. What is becoming clear is that the leadership companies of the future will be those that base their missions and corporate strategies around measuring and managing value. Not only building shareholder value-added but as an integral part of that same process also recognizing the potential for building societal value-added. This publication takes an in-depth look at how companies are managing this process of creating share-holder and societal value.”
Source: PSDP, PWBLF, and World Bank
Creating the Enabling Environment for Public-private Partnerships and Global Corporate Citizenship
“As the role of the private sector becomes increasingly central to global growth, governance and development there is a strong need to ensure that private interest is matched with public good. But neither global corporate citizenship nor public-private partnerships are easy to achieve. One of the main challenges is to create an enabling environment within which these two inter-related activities can flourish.
Source: PSDP, PWBLF, and World Bank
CSR Main Components
The scope of CSR is conceptually quite unbound at the present time. The debate between the private sector, civil society and governments focuses on a few key issues. As there is no single, commonly accepted definition of CSR, there is also no commonly accepted classification of the main components of CSR. Often, CSR is related to:
Environmental protection - The focus is on finding sustainable solutions for natural resources use to reduce company’s impact on the environment. Over the past several years, environmental responsibility has expanded to involve substantially more than compliance with all applicable government regulations or even a few initiatives such as recycling or energy efficiency. Many citizens, environmental organizations and leadership companies now define environmental responsibility as involving a comprehensive approach to a company's operations, products and facilities that includes assessing business products, processes and services; eliminating waste and emissions; maximizing the efficiency and productivity of all assets and resources; and minimizing practices that might adversely affect the enjoyment of the planet's resources by future generations.
For further information, please visit: Business for Social Responsibility (BSR),CSR Forum, CSR Wire
Labor Security - It includes freedom of association and the effective recognition of the right to collective bargaining; the elimination of all forms of forced and compulsory labor; the effective abolition of child labor; and the elimination of discrimination in respect of employment and occupation.
For further information, please visit: BSR, CSR Wire, CSR Forum
Human rights – Business practices can profoundly effect the rights and dignity of employees and communities. The main focus is on developing workplaces free from discrimination where creativity and learning can flourish decent codes of professional conduct, and where a proper balance can be maintained between work and other aspects of our lives. Behaving irresponsibly on the issue of human rights could be costly because their reputation and bottom line is at stake. This is also related to globalization and increasing international trade and the challenge of findings ways of doing business world-wide that respect human rights and social justice and facilitate the appropriate development of the emerging economies. Countries are expected to support and respect the protection of international human rights within their sphere of influence; and sure their own corporations are not complicit in human rights abuses. Paying workers a living wage and protecting them from harassment may cost a little more in the short run, but if it improves morale and reduces turnover then it may still be good for profits after a few years. So socially responsible management practices may contribute directly to profits. For further information, please visit: CSR Forum, UN Global Compact, BSR, CSR Europe
Community involvement - It includes: community partnership, employee giving, global community involvement, philanthropy, product and services donations, release time, volunteerism etc. Corporate community involvement refers to a wide range of actions taken by
companies to maximize the impact of their donated money, time, products, services, influence, management knowledge and other resources on the communities in which they operate. When strategically designed and executed, these initiatives not only bring value to recipients, but also enhance the reputation of companies and their brands, products and values in local communities where they have significant commercial interests -- as well as around the world. To learn more about business involvement in poverty alleviation, please see Module 5: CSR and the Poor.
For further information, please visit: BSR, CSR Wire
Business standards cover a broad area of corporate activities such as ethics, financial returns, environmental protection, human rights and labor standards. The standards are usually accepted at corporate, business association, industry or country level. The rise of international trade, globalization, and instant communication has led to increasing pressure from various groups for the formation of global business conduct standards. In response to their concerns, different standards have been proposed and created. This has led to many different questions: which standard is the "best"?; are there any real benefits to compliance with a global standards?; can a global standard be universal?; can compliance with a global standard be audited? and if so, who, if anyone, should monitor compliance?
Source: UNCTAD, “Foreign Direct Investment and the Challenge of Development,” World Investment Report, 1999.
For further information, please visit: OECD Guidelines for Multinational Enterprises, Fundamental ILO Conventions, Caux Principles for Business, Global Reporting Initiative Marketplace (including distribution, ethical marketing, pricing, billing, consumer’s privacy, product disclosure, product quality and safety, etc.) Marketplace issues, as they relate to corporate social responsibility, extend across a wide range of business activities that define a company's relationship with its customers. These activities may be grouped into six categories: (1) product manufacturing and integrity; (2) disclosure, labeling and packaging; (3) marketing and advertising; (4) selling practices; (5) pricing; and (6) distribution. In each of these areas, companies are retooling their business strategies to address new issues such as privacy and technology, marketing to children, heightened expectations for product safety and environmental impact, increased scrutiny by consumers and non-governmental organizations, and the steady globalization of the consumer movement.
For further information, please visit: BSR In a broader sense, CSR also includes:
Enterprise and economic development - This broad concept includes: competitiveness, development of local SMEs, entrepreneurship, community economic development, micro finance in emerging economies etc.) The drive of entrepreneurs in developing countries can provide the catalyst to lift an economy onto an upward growth spiral. In many cases, however, the lack of an enabling business framework and a scarcity of support structures for new businesses can work to undermine and defeat entrepreneurial endeavor. Increasingly, multi-national companies (MNCs), with their wealth of financial, technical and managerial expertise, are being called upon to provide a focal point of support for local businesses. At the same time, MNCs can work to help governments understand the ways in which an enabling business framework can be developed to fuel domestic entrepreneurial efforts. Business involvement in community economic development (CED) is the application of a company's core business functions, as well as foundation and contribution dollars, to business endeavors in low-income and underserved communities for the mutual economic benefit of community and company. For further information, please visit: CSR Forum, CSR Europe
Health promotion - The workplace is now recognized as an important setting for health promotion in industrialized countries, and interest is growing in the wider role that business can play as a partner in health development. Private sector business plays a dominant role as the driver of current global economic development, and globalization is bringing new social and
economic challenges. For those concerned with promoting well-being, it is essential that policies and programs are adjusted to address this new reality and that the business community is, as far as possible, engaged as a partner in the promotion of well-being.
WHO Director General to the 51st World Health Assembly in 1998, Gro Harlem Brundtland indicated a significant shift in WHO policy towards engaging the private sector when she said:
"We must reach out to the private sector... the private sector has an important role to play both in technology development and the provision of services. We need open and constructive relations with the private sector and industry, knowing where our roles differ and where they may complement each other. I invite industry to join in a dialogue on the key issues facing us".
For further information, please visit: CSR Forum
Education and Leadership Development - As educations is one of the key elements of sustainable development and pro poor growth, businesses, working together with public sector and civil society, can make an important contribution to providing an access to quality education for all. Companies can also make more critical impact on the development process by raising standards in corporate education and leadership development, and bringing best practices to their partners in developing and transitional economies.
For further information, please visit: CSR Forum
Human Disaster Relief - Companies, in cooperation with public sector, civil society, and international organizations, have played an important role in supporting humanitarian relief operations. Due to the rising cost, threat and complexity of the consequences of major disasters on society, the key challenge is to go beyond “proactive response” and to focus on prevention where CSR framework can help the key players to utilize more development oriented approach.
For further information, please visit: CSR Forum
CSR Main Components - Case Studies
¾ Toyota’s CSR Practices¾ Phillips-Van Heusen
The London Benchmarking Group
¾
¾ Delphi Automotive ¾ Nike
¾ Siemens – Contributing to a Better World ¾ Merck
Toyota’s CSR Practices
Toyota's environmental policy and guidelines for the promotion of its global environmental conservation activities are outlined in its 'Earth Charter' which was introduced in 1992. Toyota's concern for the environment ranges from the effects of vehicle exhaust emissions, to the
environmental impact of its manufacturing processes. The company's environmental commitment is focused on the development of technology which makes its products and processes cleaner and more efficient and which will provide Toyota with a competitive edge.Toyota aims to become a socially respected business in the eyes of the international business community, and each affiliate undertakes its own corporate giving based on local needs. The most important themes for Toyota's involvement in the community are education and the environment.
• Toyota Teach, an educational programme established in South Africa and promoted through the Toyota South Africa Foundation.
• An educational and international student exchange programme in Vietnam.
• Student scholarships in Kenya which are awarded by the Toyota Kenya Foundation.
• The Toyota Volunteer Centre in Japan.
• The Automotive Training Programme which was formed in partnership with the LA Urban League in response to the 1992 civil unrest in Los Angeles.
Source: CSR Forum
Phillips-Van Heusen
Phillips-Van Heusen Corporation efforts to constantly reaffirm PVH's century old legacy of exemplary corporate citizenship is seen in the company's policies towards diversity, sexual harassment, bigotry, equal employment opportunities and, importantly, workers rights.The Phillips-Van Heusen Corporation Foundation serves as the center for the Corporation's charitable activities. PVH encourages associates to reach out and volunteer in the communities in which they live and work. The Corporation's support spans both national organizations as well as health, human rights, educational, business and cultural institutions located in the communities where the major facilities of PVH are located both in the U.S. and off-shore. In 2001 alone, PVH associates assisted local and national community service organizations such as the United Way, Ronald McDonald House, Habitat for Humanity, Red Cross and Safe Horizon House. Through our foreign operations divisions, PVH has also contributed to schools, orphanages and families in Mexico, Honduras and the Far East.Phillips-Van Heusen Corporations' record as a fair and honorable employer spans its over 125-year history. Its commitment to the well being of all its associates can be seen in a number of ways:
• PVH is a member of the Fair Labor Association.
• PVH is a strong supporter of major, reputable non-profit organizations dedicated to address issues of ethical business and human rights- such as Business for Social Responsibility and Human Rights Watch.
• PVH was one of the first corporations in the industry to create a Human Rights Program Department to assess and monitor the conditions of factories worldwide.
• PVH is also committed to developing human potential by supporting education in many forms - Project NEO is one such example. Here, PVH has partnered with a non-profit, international humanitarian organization to improve educational opportunities for more than 5,000 children in seven public community schools in a semi-rural municipality in Guatemala.
In 1991, PVH created a Code of Conduct that describes our requirements for all suppliers, contractors, and business partners. This code of conduct, "A Shared Commitment," demonstrates our continued desire to be an agent of change throughout the global community and to partner with individuals and companies that share our values and concerns. Among those values and concerns is a firm understanding that a diverse workforce is important to our associates and to our business. At PVH, one of the most important guiding principles is our commitment to respect for the individual.We also believe that diverse workforce is better able to respond to our
consumer's needs and to the competitive demands of the global marketplace in which we do business. PVH has a growing international presence, and we strive to maintain a global perspective and an appreciation of world cultures.
Community involvement - The London Benchmarking Group
“The London Benchmarking Group was formed in September 1994. It comprises senior community affairs managers from leading UK headquartered companies. It was established to meet the need for accurate and comparable information about how different companies define, fund and manage their community involvement activities. The LBG produced the London Benchmarking Group Model in 1997 which was then tested by a group of 18 companies across different industry sectors. The model provides a basis to decide what is, and what is not, corporate community investment. It is devised around three main motives for corporate community investment (charitable gifts, community investment and commercial initiatives in the community) and distinguishes between "input" costs and "output" benefits. The model is increasingly being adopted in the UK and internationally as a benchmarkable standard. Practical guidance on using it is available.”
Source: The Corporate Citizenship Company
Community involvement - Delphi Automotive
”Delphi Automotive participates in a unique business/public sector/NGO partnership designed to increase home building and home ownership opportunities for its employees and low income residents of communities in Mexico. In 1997, Delphi's Chasis Division, the world's largest manufacturer of auto parts, initiated a partnership program with the Mexican government to provide subsidized housing for Delphi employees in Mexico. Through the Delphi Border Housing Project, the company provides workers with downpayment assistance to purchase government-sponsored low-cost housing. To date, the company has helped over 2,200 employees find housing, and plans to build 7,000 homes in the cities of Reynosa, Matamoros, Monterey, Nuevo Laredo, Chihuahua, and Ciudad Juarez by the end of 1999. Reaching beyond Delphi employees to benefit people in the broader community, Delphi has formed a strategic partnership with Habitat for Humanity to provide affordable housing for non-employees in the Mexican communities in which they work. Through the initiative, Delphi has committed to funding the development of 50 homes and covering Habitat's local administration expenses for two years.” Source: Business for Social Responsibility (original file unavailable)
Nike
„...To lead in corporate citizenship through proactive programs that reflect caring for the world family of Nike, our teammates, our customers and those who provide services to Nike...” This is a mission statement of Nike.
Siemens – Contributing to a Better World
“Of course, as a commercial company, Siemens wants to sell products and solutions, to earn money – and that’s the case all over the world. With our products we can make an important contribution in developing countries by setting up an efficient power supply, by setting up
communication and transport infrastructure. These are essential for successful development. Our corporate principles tell us to use our knowledge and solutions to help make a better world”
Merck
“Merck believes our responsibilities as a corporation extend beyond our primary business of discovering, developing and marketing important new medicines. We believe we have a commitment, through our corporate philanthropy initiatives, to help the non-profit sector meet important societal needs. In doing so, we focus on areas where Merck has an interest and
expertise: advancing scientific knowledge and education, and improving health care. In addition, we address other important issues, such as promotion of the arts and protection of the
environment.”
For more information please see: Merck
The Triple Bottom Line
In a situation where there is growing pressure on companies to deliver both shareholder value and social and environmental value, managers focus their attention on maximizing valued-added across the triple bottom line. The triple bottom line focuses on three dimensions of sustainability: economic, environmental, and social.
Economic bottom line:
Although main emphasis is on financial performance, this often refers not only to profit but to the philosophies behind a company's strategy or behavior, the sustainability of its businesses and its 'human capital”.
Environmental bottom line
The impact of its products or operations on the environment, plus the nature of its emissions and waste and how it is dealing with them.
Social bottom line
How it approaches issues such as ethnic and gender diversity, working hours and wages, staff security and its contribution to community services or facilities
With help from the consulting industry who provide triple bottom line advisory services to businesses, more and more companies are reporting on their triple bottom line performance.
Although a number of initiatives have addressed the need for global conduct standards, including triple bottom line reporting such as the Global Reporting Initiative, no international standards have as yet emerged.
Triple Bottom Line - Readings
Triple Bottom Line Reporting-FTSE Trend
Eco Steps Triple Bottom Line (TBL) Advisory Service Global Conduct Standards
Effects of “Best Practic s” of Environmental Management on Cost Advantage: The role of Complementary Assets
Triple Bottom Line Reporting – FTSE Trend
Around 50% of FTSE- 100 companies publish formal environmental reports and this figure is expected to rise to at least 70% by the end of 2001.The number of companies publishing specific reports on social policies rose from three in 1996 to 28 in 1999. A recent survey by CSR Europe, Communicating Corporate Social Responsibility, targeting 45 global and large companies operating in -the EU showed that over 90% of these reported on their mission, vision and values, workplace climate, community involvement, local economic development, marketplace and environmental impact.
Source: Landcare Research, Triple Bottom Line Advisory Service
The Triple Bottom Line Approach
In essence, an organisation:
• Establishes its own values in relation to social, environmental, and economic issues. • Determines the performance issues of importance to its stakeholders (staff, customers,
shareholders, communities, suppliers, insurers, etc).
• Integrates the above to establish a set of key performance areas, indicators, and targets. • Measures and openly reports performance, with external verification to increase trust.
The Decision to Adopt the Triple Bottom Line Approach
Organisations choose to report for many different reasons. If used effectively, the TBL approach and reporting have the potential to:
• Build stakeholder relationships based on shared values, trust, and integrity
• Manage risks by identifying areas of concern to stakeholders and being able to deal with them proactively rather than reactively
• Enhance internal management by identifying areas of improvement
• Increase the organisation's contributions to global sustainable development • Reduce operating and compliance costs through improving systems • Benchmark the organisation against others reporting in its sector
Increase market opportunities through stimulating innovation and attracting new clients.
Source: Landcare Research, Triple Bottom Line Advisory Service
Eco Steps Triple Bottom Line (TBL) Advisory Service
What does it address?
The notion of reporting against the three components (or ‘bottom lines’) of economic, environmental, and social performance is directly tied to the concept and goal of sustainable development. Triple bottom line reporting, if properly implemented, will provide information to enable others to assess how sustainable an organisation’s or a community’s operations are. The perspective taken is that for an organisation (or a community) to be sustainable (a long run perspective) it must be financially secure (as evidenced through such measures as profitability); it
must minimise (or ideally eliminate) its negative environmental impacts; and, it must act in conformity with societal expectations. These three factors are obviously highly inter-related.
How do you ‘do’ it?
Integrated TBL accounting and reporting implies that the three measures of value added are incorporated into a single, all-encompassing measurement. So, for example, economic value added measures would be adjusted for the environmental and social dimensions. At the macro level, integration efforts are already in existence - the Index of Sustainable Economic Welfare (ISEW) adjusts normal measures of welfare by subtracting costs such as those associated with unemployment, commuting, automobile accidents, and all forms of environmental pollution. The near-term challenge, is to identify a limited set of key performance indicators for each bottom line, with a constant eye on the degree to which - and how - progress can be measured and integrated into an overall set of accounts.
Source: Eco STEPS: Sustainability Training Education Practices & Strategies
Global Conduct Standards
The on-going debate is mostly on 1) the type of information that should be disclosed; 2) the reporting format that should be used consistently by all; and 3) independent third parties that will verify the information.
Global Reporting Initiative (GRI) - issued in 1999, but development is ongoing)
The GRI is an international reporting standard for voluntary use by organisations reporting on the economic, environmental and social dimensions of their activities, products and services. Using input from reporters and report users, the GRI has sought to develop a list of specific indicators for reporting on social, environmental and economic performance. The GRI pursues this mission through a multi-stakeholder process of open dialogue and collaboration in the design and implementation of widely applicable sustainability reporting guidelines.
Effects of “Best Practices” of Environmental Management on Cost Advantage: The role of Complementary Assets
“Research on the effects on firm performance of best practices of environmental management, which are supposed to enable firms to simultaneously protect the environment and reduce costs, has so far ignored the roles of existing firm resources and capabilities. Drawing on the resource-based view of the firm, this study analyzes whether complementary assets are required to gain cost advantage from implementing best practices. Results based on survey data from 88 chemical companies indicate that capabilities for process innovation and implementation are complementary assets that moderate the relationship between best practices and cost advantage, a significant factor in determining firm performance.”
Source: P.Christman, Academy of Management Journal, 2000 Vol. 43, no. 4, 663-680
Triple Bottom Line - Quotations
"I believe that … voluntary public reporting promotes greater transparency for … companies, and improves community confidence in our sector as a whole. It follows, therefore, that institutions in our society that rely on community confidence - such as government departments, media outlets, and community based organisations - might well consider embracing the highest standards of public reporting on matters such as environment, safety, and community relations."
-- Hugh Morgan, Chief Executive Officer, WMC Ltd.
"Through GRI, consumers may have a potent new weapon to move companies toward improved social responsibility, enabling us to tell the good guys from the not-so-good ones when we shop, invest, and apply for jobs… And GRI may be the brightest ray of hope we have to cure many of our planet’s gravest ills."
-- Co-op America Quarterly, Spring 2001
"On balance, the GRI guidelines are a huge achievement. So huge that few firms, big or small, can ignore them. The guidelines, thanks to GRI’s massive commitment to inclusiveness, have fast become the leading way for companies to respond to the growing global demand for corporate accountability."
-- Tomorrow, November/December 2000
"The transparency of GRI has helped us immeasurably at Ford… It was absolutely necessary and right for us to adopt GRI. We’re glad we did."
-- John Rintamaki, Group Vice President and Chief of Staff, Ford Motor Company, November 2000
"The Global Reporting Initiative is an admirable response to one of the primary challenges of our times: making global markets more stable and inclusive."
-- Kofi Annan, Secretary General of the United Nations, November 2000
"I believe the GRI can make a major contribution in the growing efforts to curb corruption."
-- Frank Vogl, Vice Chairman, Transparency International, November 2000
"The GRI holds out an additional, possibly unique, opportunity for NGOs [non-governmental organisations]. It is not only a potentially useful forum where NGOs can deliver their campaign message directly, regularly, and in undiluted form to industry and government actors. Equally importantly, perhaps, it provides a potential stimulus and framework—currently lacking—for helping NGOs to dialogue on and develop shared positions around their shared and overlapping environmental sustainability and social justice concerns."
-- Paul Hohnen, Special Adviser, Greenpeace International, November 2000
Source: Global Reporting Initiative, www.globalreporting.org
Increased Importance of CSR
CSR is becoming one of the most challenging issues that both private and public sector, civil society and opinion leaders, and other practitioners are faced with. The main reason for the increased importance of CSR can be classified into six broad and overlapping categories:
Globalization: New CSR Issues
More complex organizations which operate in diverse cultures and jurisdictions; Different CSR standards among countries;
Diverse cultures, norms and values, languages, laws and regulations, quality of life, and readiness to recognize the existence of these issues and willingness to confront them; Need to achieve consistent business conduct standards;
How to deal with local CSR standards (including health, safety, and environment), which are lower than ones back home?
Importance of local champions among community leaders, beyond company level initiatives.
New Technology
Impact of information technology:
o Companies are first to be exposed to these issues
o Questions of security - data protection and customer privacy
o Emerging industries, such as “dot.coms”, have different base of competitiveness – once mature, they will pay more attention to business ethics and corporate social responsibilities;
New technology, such as telecommuting reduce face-to-face communication between employees and managers;
Technological changes: new CSR dilemmas, including engineering and privacy on the Internet:
o Real-time exchange and conversation on the Internet is available instantly and globally, thus allowing citizens to express their opinions, make suggestions, and post their complaints online. The Internet empowers customers to shape corporate reputation.
The Internet provides a very efficient way to check the company history, its economic, social, and environmental attitudes.
Complexity and Risks
The complexity arises because of discontinuities in technology, demography, revolutions, societal and cultural trends, and from the fact that the next rules of competition have yet to be written. Furthermore, unpredictable and turbulent changes can come to any industry (even in those where the rules of competition are clearly defined today) thus exposing countries and companies to unforeseen competitive pressure. In addition to competitive pressure, increased importance of societal expectations being placed on businesses put the issue of competitiveness on an unprecedented scale and level of complexity. This includes such issues as
Increased merger and acquisition
Increasing complexity, likelihood and significance of risk from wrongdoing
More complex organizations and risks of “cultural clash” due to increased complexity of operations: even a single act of wrongdoing can have far reaching consequences
Rapidly changing world: leads to increased uncertainties and need for continuous “keeping up”
New laws and regulations: increase complexity and the potential for non-compliance Increasing influences of stakeholders, particularly NGOs
Increased vulnerability of big companies due to: o “Life in CNN world”
o responsible for their partners in other countries
o big scandals lead to more government interventions including regulations Corporate downsizing and decentralization often leads to:
o Loss of valuable experience o Loss of control mechanisms
Greater Likelihood of Discovery due to:
A more powerful and aggressive media 24 hours global news services
Increased scrutiny by stakeholders, such as governments, NGOs, the public and customers
Greater Cost of Misconduct due to:
Increasing fines and penalties – still primarily driven by “new legislation and regulations” Increasing reputation damages in an era of expanding customer choice
Growing interests of the investment community, in “softer issues” such as CSR and impact on the environment.
Increased Importance of CSR - Case Studies
¾ Global Communication Revolution ¾ Communication Skills
¾ Global News - Nike ¾ Global News – Pfizer
¾ Complexity and Risks - Shell ¾ Greater Cost of Misconduct
¾ Greater Cost of Misconduct: Increasing Fines and Penalties
Global Communication Revolution
“Indeed, the revolution in communication technologies has created all sorts of new ethical dilemmas. Because it is mainly businesses that develop and spread new technologies, business also tend to face the first questions about how to use them. So companies stumble into such questions as data protection and consumer privacy. They know more than ever before about their customers’ tastes, but few have a clear view on what use of knowledge is unethical. There might still be two good reasons for companies to worry about their ethical reputation. One is anticipation: bad behavior, once it stirs up a public fuss, may provoke legislation that companies will find more irksome than self-restraint. The other, more crucial, is trust. A company that is not trusted by employees, partners and consumers will suffer. In an electronic world, where businesses are geographically far from their customers, a reputation for trust may become even more important.”
Source: The Economist “Doing well by doing good”, August 22, 2000
Communication Skills
“ Awareness of corporate community involvement is low, and has remained low throughout the past decade despite the growing focus on social and environmental activities by both Large companies and SMEs. This goes a long way to explaining why nearly three-quarters of the public believe that industry and commerce do not pay enough attention to their social wider
communities. It is up to companies to find ways to communicate effectively with their costumers, employees and their local and wider communities. The overall message is clear-companie are now expected to be able to meet the responsibilities of the society in which they live and operate, whilst competing effectively. The rewards are high because if the public knows the values that a company stands for, and sees how these beliefs are actively demonstrated, they are more likely to have a positive image of that company”
Global News - Nike
The momentum for global social change in this era of instant communications is unprecedented. Consider Nike. In March 1998, the company announced that its financial performance had deteriorated substantially over the past year. One of the main reasons addressed by company management for Nike’s decline was resistance of consumers that the company mistreats its factory workers.
Global News - Pfizer
“Oxfam and South African groups have called for global action against Pfizer on the grounds of its pricing policies. Fresh from their positive welcome for recent actions by GlaxoSmithKline, Oxfam accused Pfizer of “moral bankruptcy” for pricing drugs out of the reach of millions of poor people.” Source: CSR News, Pfizer targeted on drugs pricing, July 25, 2001
Complexity and Risks - Shell
“In 1995 Shell suffered two blows to its reputation: one from its attempted disposal of the Brent Spar oil rig in the North See, and the other over the company’s failure to oppose the Nigerian government’s execution of a human rights activist in a part of Nigeria where the company had extensive operations. Since then Shell has rewritten its business principles, created an elaborate mechanism to implement them, and worked harder to improve its relations with NGOs. Shell’s efforts had no clear legal or financial pressure behind
them.”
Source: The Economist “Doing well by doing good”, August 22, 2000
Greater Cost of Misconduct
“Fear of embarrassment at the hands of NGOs and the media has given business ethics bigger push. Companies have learned that hard way that they live in a CNN world, in which bad
behavior in one country can be seized on by local campaigners and beamed on the evening news to consumer at home. As NGOs vie with each other for publicity and membership, big companies are especially vulnerable to hostile campaigns.”
Source: The Economist “Doing well by doing good”, August 22, 2000
Greater Cost of Misconduct: Increasing Fines and Penalties
“In the USA companies have a special incentive to pursue virtue: the desire to avoid legal penalties. The first attempts to build ethical principles into the corporate bureaucracy began in the defense industry in mid 80’, a time when the business was awash with kickbacks and $500 screwdrivers. The first corporate-ethics office was created in 1985 by General Dynamics, which was beginning investigated by the government for pricing scams. Under pressure from the Defense Department, a group of 60 companies then launched an initiative to set up guidelines and compliance programs. In 1991, federal sentencing rules extended the incentive to other industries: judges were empowered to reduce fines in cases involving companies that had rules in place to promote ethical behavior, and to increase them for those that did not.”
Increased Importance of CSR - Data
CSR Impacts
An opinion leader survey on corporate social responsibility in France, Germany, and UK, conducted by Burson-Marsteller shows that:
• • 66% of opinion leaders agree strongly that corporate citizenship will be important in the future.
• • 64% of opinion leaders agree strongly that the health of a company’s reputation will affect their own decisions as legislators, regulators, journalists, NGO leaders, etc. • • 42% of opinion leaders agree strongly that corporate responsibility will affect
share prices in the future.
The survey also asked if they agree that corporate responsibility will influence the decisions they make in the future.
Source: Burson-Marsteller, The Responsible Century?
Benefits of CSR
There are many reasons why it pays for companies, both big business and SMEs (small and medium enterprises) to be socially responsible and be conscious about the interest of the key stakeholders.
“Companies are now recognizing that dealing with environment and social issues can provide business benefits when reputational risk is high and sustainable competitiveness and
development becomes a key strategy.” Susan Ariel Aaronson, Senior Fellow, National Policy
Examples include:
1. Getting license to operate– from key stakeholders not just shareholders
In a situation where about half of the world’s 500 biggest economies are corporations, often answerable only to themselves and effectively stateless, then citizens have to rely on corporations’ own internal values and policies to keep them socially responsible. The critical challenge is to make sure that those values are focused on what is best for the key stakeholders, not just shareholders. The increased power of companies and thus, business leaders leads to ever growing expectations from society in large, that company needs “license” from society to operate. With the increased power of companies and the spread of privatization, the private sector is gaining a much bigger role and responsibility for economic development. In this context, the bigger the private sector is, the higher societal expectations and responsibility are. This responsibility is not limited to economic issues but must also include social and environmental progress. The key challenge, particularly for companies in transitional and developing countries is the change in the survival mentality and the culture that emphasizes short-term gains at the expense of moral and societal values. Providing products and services ethically and in a socially responsible manner requires a different mind-set. A mind set that puts emphasis on “doing things because they are right and not only because they maximize shareholder value”.
2. Sustainable Competitiveness
The impact of CSR on sustainable competitiveness can be unbundled in five overlapping elements:
A. Enhancing reputation and brands B. More efficient operations
C. Improved financial performance D. Increased sales and consumer loyalty
E. Increased ability to attract and retain quality employees
To remain competitive, firms, big and small, realize that they must take CSR into consideration, thereby meeting the expectations of the investors, employees, consumers, business partners, and communities. This is particularly challenging for firms in transitional and developing
countries. With a broader introduction of CSR and business ethics concepts and its relevance for staying competitive in the global knowledge based economy, there is a real danger that
transitional economies and developing countries, unless they address these issues in a timely and systematic way, could face the risk of social and political unrest thus jeopardizing the development of a market economy and even democracy.
CSR must be conceived as an ongoing long-term undertaking; an integral part of corporate competitiveness. The real challenge is how to make CSR a competitive asset. The Turnbull Report, which forms part of the UK’s corporate governance guidelines, advises companies to treat reputation in the same way as all other assets. Companies cannot sustain their competitive advantage unless they care for their customers, their products, the environment, and the communities in which they operate. Many companies are adopting CSR practices out of a hardheaded appreciation of their corporate self-interest. It should not be confused with short-term crisis management. For more detail discussion, please see Module 4: Building Sustainable Competitiveness through CSR
A. Enhancing Reputations and Brands
The business environment is more and more sensitive to firm’s social, ethical, and environmental performances due to globalization, the communication revolution, knowledge based economy, and mobility of customers and suppliers. Branding and customers loyalty become more critical in
globalized economies, putting additional pressure on careful selection of strategic partners and participants in the global supply and distributing channels. With e-economy, brand loyalty and reputation become even more important. This is probably the single most important and advantageous way for the manufacturers to strengthen their position towards the e-based retails. This makes reputation increasingly central to all the businesses and an important competitive asset whether expressed in the brand value of a large multinational or a local shop’s reputation for customer service. Stakeholder reputation can be more valuable than brand, because it is more difficult and time-consuming to develop, thus, more sustainable – competitors cannot easily mimic this.
B. More Efficient Operations
Utilization of CSR framework in corporate business strategy can result in high
efficiency in operations, for instance, improved efficiency in the use of energy
and natural resources; reduced waste such as reducing emissions of gases; and
selling recycling materials. Business operation also benefits from better human
resources. In the human resources arena, work-life programs that result in
reduced absenteeism and increased retention of employees often save
companies money through increased productivity and by a reduction in hiring and
training costs. For example, companies that improve working conditions and
labor practices among their offshore suppliers often experience a decrease in
defective or unsalable merchandise. A study of 15 large employers conducted
by the Medstat Group and the American Productivity and Quality Center found
that health benefit programs can increase productivity and decrease company
costs related to absenteeism, turnover, disability and health-care claims by 30
percent.
C. Improved Financial Performance
Business and investment communities have long debated whether there is a positive correlation between socially responsible business practices and better financial performance. Although it is impossible to give a final answer to this dilemma, various surveys and several academic studies have proved the positive correlation.
D. Increased Sales and Customer Loyalty
A number of surveys and studies have concluded a larger and growing market for the products and services produced by socially responsible companies. While businesses must first satisfy customers’ key buying criteria – such as price, quality, appearance, taste, availability, safety and convenience – studies also show a growing desire to buy based on other values-based criteria, such as “sweatshop-free” and child-labor-free clothing, smaller environmental impact, and absence of genetically-modified materials or ingredients. CSR concerned consumers will probably do better to buy products produced by reputational companies with manufacturing facilities in developing countries – which, in order to protect their reputation, have started to use independent monitors in these countries – than to purchase a no-name brand.
E. Increased Ability to Attract and Retain Quality Employees
Greater job mobility means that attracting and retaining a committed and skilled workforce is vital to business success – and there is powerful evidence that a strong track record on social
responsibility can help in this.
3. Creating New Business Opportunities
Open and productive two-way communication with the stakeholders not only improves the company’s reputation but also opens up new business opportunities. Close cooperation with key stakeholders and communities and responding to CSR constraints by revising business practices and strategies and accepting triple bottom line concepts also provide opportunities through innovation, creative thinking, better relations with key stakeholders, and introduction of new products and markets. Creative thinking is highly stimulated by addressing issues of CSR and taking into consideration the ecological and social costs. Facing and solving CSR challenges can put additional creative pressure on businesses. When competitors adopt less costly but not socially responsible and ethically sound solutions, your company should take advantage of the new challenge and try to create and explore innovative, creative alternatives and seek new
solutions. Creativity is one of the vital ingredients for building sustainable competitive advantages. Productive communication with outside stakeholders will further facilitate the development of creative and innovative strengths
Experiences gained through addressing CSR challenges also provide opportunities for companies, through consulting services, to sell their know-how to other companies.
4. Attracting and Retaining Quality Investors and Business partners
Sound CSR practices help companies attract and retain quality investors and business partners. The benefits can be classified in four broader categories:
• • Increased shareholder value • • Lower cost of capital
• • Access to Socially Responsible Investment Fund
• • Reducing Risks by Bringing Best Practices to Business Partners
Demand for investment capital is increasing and companies like to raise capital at a lower cost possible. Investors are usually ready to pay more for companies with sound business practices. At the same time, investors are requiring new “conditions” for minimizing their risks, such as good corporate governance, business ethics and corporate social responsibility policies and practices.
Many countries were able to attract foreign investment and other forms of partnership by offering low cost labor. However, there are cases when this cost saving was achieved through hiring defenseless children, impoverished adults, and other powerless hourly workers. Thus cost saving
became a high risk, damage on reputation, and thus eventually a high cost. “Reputational risk” that arises from irresponsible social and environmental business practices – for instance, environmental damages, violation of human rights, and child labor – is an additional risk, and doing business with socially and environmentally irresponsible partner brings reputational risk to the company. Therefore, world-class companies started helping their suppliers to adapt similar CSR practices thus reducing reputational and other forms of risk.
The UK Ethical Trading Initiative for example aims to ensure that goods are out sourced from supplier in the countries, which respect human rights and provide safe working conditions.
5. Cooperation with Local Communities
Increasingly dynamic marketplaces mean that company’s success depends crucially on responding to the needs of the communities or cultures in which it operates. Cooperation with local communities help in tailoring products and services to indigenous markets; make easier to use local expertise, distribution channels, production facilities thus reducing the cost of new investments, and increased loyalty of employees.
6. Avoiding Crisis Due to CSR Misconduct
Ignoring CSR can be very costly because the company might lose reputation, market-share, and stock price. Reputational risk should be considered as a set of threats that affect the long-term trust placed in the organization by its stakeholders. This included risks not only to products, but goes beyond to company itself, and whole industry. An illustration of reputational damages for the whole industry is the loss of trust by consumers of British beef due to the way of handling “mad cow” disease.
Reputational risk is largely about perception (different from traditional risks). Perception can differ for different stakeholders. For example, environmental risk affects companies through three channels: a) in the market place: loss of customers, b) in courts: threat to company balance sheets, and c) in the regulation area: new regulations can increase operating costs. Some managers usually understand environmental risk as a risk to the company that arises from social concerns about the environment. For government regulators and environmental activist, environmental risk is the risk of damage to ecosystems (risk to the environment). Similarly to other risks, reputation is asymmetric (in perception) and has no short-term upside. Superior risk management can be a source of long-term competitive advantage.
Best-known brands and big companies are the first target for CSR misconduct and the consequences could be huge in terms of lost market share or market capitalization. A damaged reputation might require years to rebuild and cost a large sum of money.
A recent Business and Society study found that social irresponsibility can result in a negative effect on a company’s profitability – especially when it makes the front page of the newspapers. A 1997 analysis in Business & Society measured the stock market’s reaction to 27 events of socially irresponsible or illegal behaviors, and found that companies involved in such occurrences suffered significant losses in shareholder wealth. The analysis measured the stock market’s reaction to incidences of social irresponsibility, and found that there is indeed a direct correlation, although the data cannot tell us if the losses are long-term or short-term.
Source: Business & Society, (Vol. 36, No. 3, Sept. 1997)
7.Government Support
Many governments give financial incentives for sound CSR initiatives, including environmentally friendly innovations. Companies that demonstrate they are engaging in practices that satisfy and go beyond regulatory compliance requirements are being given less scrutiny and freer reign by both national and local government entities.
8.Building Political Capital
Addressing CSR issues provides a chance to build political capital: to improve the relationship with government and political leaders and officials, to influence regulations, to reshape public institutions on which the company depends, and to improve public image.
In order to fully understand the benefits of incorporating CSR guidelines in corporate and national development strategy, it is critical to understand the difference between CSR and narrow
philanthropic motives and social services that were traditionally provided by state-owned companies. Another important issue that requires particular attention is the complexity of
measuring the benefit and impact of CSR, particularly when the triple bottom line concept is to be implemented.
Business Benefits - Case Studies
¾ Business Benefits
¾ Ethical Companies Do Better Financially ¾ Loyalty of Employees
¾ Customers’ Approval of Ethical Policy – The Co-operative Bank ¾ Improved Efficiency - Energy
¾ Improved Efficiency – Reduced Waste ¾ New Skills and Knowledge
¾ Building a Reputation in the Community – Asda ¾ Trading on Reputation – B&Q plc
¾ Company’s Brand Value and Reputation
¾ Consumers are Ready to Pay Premium for Environmentally and Socially Responsible Products
¾ Market Behavior on CSR ¾ Consumer Boycotts
¾ Building Political Capital - Case in the US ¾ Creative Thinking – New Business Products ¾ Reputational Risk – Shell
¾ Big scandals lead to more government interventions ¾ Making Eco-Efficiency Pay – Unilever
¾ Consulting Services - DuPont ¾ Co-operative Bank-benefits of CSR
¾ Benefits of Good Community Relations – ARCO
¾ Companies Discover a Competitive Advantage in Fighting AIDS
Business Benefits
The recent study by Business Impact Task Force in the UK reports that:
• The cost or benefit of a company’s goods and services, how it treats its own employees and the environment, its record in respecting human rights, its investment in local communities – and even its record in prompt payment of bills, can all be significant factors affecting its reputation;
