WHO CARES WINS

WHO CARES WINS - Boardrooms are abuzz with talk of corporate social responsibility. Yet attempting to establish a working definition of CSR is like nailing jelly to the ceiling. Get it right, though, and everyone could win - you, the company, society and the planet. Stephen Cook reports.

by STEPHEN COOK
Last Updated: 31 Aug 2010

Boardrooms are abuzz with talk of corporate social responsibility. Yet attempting to establish a working definition of CSR is like nailing jelly to the ceiling. Get it right, though, and everyone could win - you, the company, society and the planet. Stephen Cook reports.

Everyone cares these days. You can hardly walk through the door of a major company in the western world without tripping over stacks of glossy reports telling you how they care for the environment, their community, their stakeholders. They're all publishing their CO2 emission targets, pledging themselves to international human rights and encouraging staff to go and bathe in baked beans for charity.

As we enter the new year, Corporate Social Responsibility is the phrase resounding around boardrooms and peppering the speeches of business leaders from Seattle to Sydney. CSR is the fresh acronym to cover what we used to call sustainability, diversity or good old-fashioned philanthropy. Everyone wants a piece. But remembering Bhopal, Enron and the sweatshops of the Far East, aren't we entitled to be a little bit sceptical?

Look at Enron's last CSR report. Sprinkled with images of sunlit foliage and smiling ethnic faces, it dwells on how the fraudulent energy giant conserved trees in Bolivia and told the security men at its Indian subsidiary to stop beating people up. Former chairman and CEO Kenneth Lay waxes lyrical about his firm's 'innovative practices'. For students of irony, the whole thing is a delight.

So as the CSR juggernaut gathers pace, is it really the big idea that will restore public faith in business and save the planet? Or is it a piece of nifty footwork and smart PR designed to spike the guns of the anti-globalisation campaigners, put the pressure groups off their stroke and persuade governments to go easy on regulation?

The question is put to Clive Mather, country chairman for Shell in the UK. To many, this is still the company that spectacularly mishandled the disposal of its Brent Spar oil rig in the mid 1990s and courted 10 kinds of pollution and human rights scandals in Nigeria. Since then, it has worked hard, with some success, to clean up and do the right thing wherever possible.

'This is for real,' says Mather. 'We can't escape it and there's no doubt about it. We are all going to have to apply ourselves to sustainable development if we're to succeed in ensuring the planet is as good a place in the future as in the last millennium. The demands of population and quality of life are going to stretch us all. No-one who thinks about it believes we can go on as we are.'

So he, and a whole cohort of leading businessmen, have moved a million miles from the strictures of Adam Smith and his followers, who continue to maintain that the business of business is business alone, and it is the elected government's job to regulate and decide what is good for society.

It's a disconcerting, looking-glass world when a lifelong oilman starts talking renewables and sounding like Greenpeace.

This point was seized upon by pressure groups and non-governmental organisations at the 'greenwash awards', their spoof of the Oscars at the Earth Summit in Johannesburg last summer. 'Oil companies are presenting themselves as solar companies, and companies that promote giant agribusiness and oppose consumer information are claiming to be the solution to world hunger,' said Craig Bennett of Friends of the Earth.

Slick PR is certainly a big part of the burgeoning phenomenon, and specialist consultancies like Article 13 and ERM have noticed a sudden rush of competitors in one of the few areas where companies are willing to spend money right now. The PR industry, worried that CSR talk is taken with a large pinch of salt, is pondering how to make it ring true.

It would, however, be a mistake to take the cynical view that there's nothing going on but greenwash and PR. There are many out there 'putting something back'. A small example is the community work done by lawyers at City solicitors Allen & Overy, one of whom is seen in our main picture mentoring teenagers in Hackney School. And even the Enron report contains hard figures about the corporation's CO2 emissions and an upfront account of an oil spill that shed 29,000 barrels of crude into a Brazilian river. The attempt may be patchy and in some cases not entirely sincere, but many companies - especially the big and influential ones - are genuinely trying to bring the idea of CSR to life.

We know this because they've concluded - along reassuringly Adam Smith lines - that their self-interest is involved. There may actually be more profit and competitive advantage for a company in behaving responsibly than in cutting corners. The environmental and human rights scandals of the past three decades have created consumers - and, just as importantly, employees - who prefer companies that are doing the right thing.

Recent Mori surveys indicate that 51% of people in the UK had recently chosen a product or service on social responsibility grounds, and that 74% thought industry did not pay enough attention to the communities where they operate. Other surveys show that 20% of people would be prepared to boycott a product on social grounds, and that there's been a 40% surge in UK purchases of 'fair trade' products giving a better deal to third world farmers.

'Issues that many managers think are soft for business, such as environment, diversity, human rights and community, are now hard for business,' says David Grayson, a director of the charity Business in the Community (BIC), a big proponent of CSR that has just launched a new Corporate Responsibility Index with the support of the chancellor, Gordon Brown. 'They are hard to ignore, hard to manage, and very hard for businesses that get them wrong. Conversely, managed well, these issues can be a source of competitive advantage.'

Further pressure to improve CSR performance is coming from shareholders - and not just from ethically motivated private investors who have always avoided oil, tobacco and armaments. We now have the FTSE4Good list on the London Stock Exchange and the Dow Jones Sustainability Index in New York; some large fund managers in London are building CSR league tables and assessing the lending record of banks.

'They're driven less by moral purpose than by risk,' says Jenny Rayner of Abbey Consulting, which advises companies on CSR. 'They don't want banks lending money to environmentally doubtful projects, for example, which might bring huge clean-up costs and reputational damage.

'Another reason why CSR is no longer an optional extra is a change to the Pensions Act in July 2000, which now requires trustees of occupational pension funds to state the extent to which they take social, environmental and ethical issues into account when making investment decisions. It's forced them to sit up and take notice. So we've moved beyond the days when all you needed was corporate philanthropy and handouts of money to the community. If businesses don't take account of much wider responsibilities to society, they're unlikely to be sustainable in the long term. And the best companies are not just protecting their backside but exploring new opportunities.'

So what should companies do to get into shape? The problem is that there is not much agreement on definition of areas to be covered and targets to be met, so they have to work it out for themselves according to their own circumstances and the activities of their competitors. They can observe companies thought to be doing it well, such as BP, Ford and Scottish Power (see box), but essentially it is a free-for-all.

However, an increasing number of companies round the world are using a blueprint from the Global Reporting Initiative or GRI (www.globalreporting.org), which was set up five years ago by the Coalition for Environmentally Responsible Economies in partnership with the United Nations Environment Programme.

The GRI has more than 100 pages of advice and would like CSR reporting to be 'as routine, rigorous, credible and verifiable as financial reporting'.

There are also guidelines from BIC, which divides the subject into four quadrants. The first is the workplace - are you treating your employees well, respecting human rights and employing minorities? Then there's the marketplace - are you responding to your customers' needs and concerns?

Then, the environment - are you going for renewables, monitoring your emissions, setting targets to reduce them, and talking to the pressure groups? And finally, there is the community - are you communicating, helping, and giving something back?

The GRI says 2,000 companies around the world now report, but the information is 'generally inconsistent, incomplete and uncertified'. This is one reason why the Corporate Responsibility Coalition, composed of UK NGOs and trade unions, was recently able to persuade more than 230 MPs of all parties to back a Ten-Minute Rule Bill designed to make it mandatory for companies with an annual turnover of more than pounds 5 million to produce social and environmental reports.

The Bill, a muscle-flexing exercise designed to influence the new Companies Bill expected before the next general election, proposed to require directors to minimise their companies' impact on society and the environment and set up a standards board to monitor CSR reports.

Another proposal contained in the Bill was to make it mandatory to consult stakeholders, and publish figures and targets on emissions and social performance.

'The requirement would cover only 2.6% of UK companies, but would account for 87% of business turnover,' says the coalition's Brian Shaad. 'We believe voluntarism has failed because there's no proper framework, companies only report what they want to report, and it's mostly greenwash and PR. Apart from anything else, the Bill would level the playing field for companies.'

Nearly three years ago, the prime minister challenged Britain's top 350 companies to produce CSR reports by the end of 2001, and only 79 managed it. Even so, the Government has stuck rigorously to a policy of voluntarism and exhortation, as has the European Community. 'The voluntary nature of CSR is its strength,' insists Stephen Timms, the CSR minister at the Department of Trade and Industry. 'Regulation would put a dead hand on innovation, creativity and imagination.'

Government and more progressive elements of industry are thus allied in a strategy of voluntary progress that continues to disturb right-wing commentators, who think companies that pursue social goals could be neglecting shareholder interests and usurping elected governments. One of the most cogent statements of their case came from Milton Friedman in 1962: 'If businessmen do have a social responsibility other than making maximum profits for stockholders, how are they to know what it is? Can self-selected private individuals decide what the social 'interest' is?'

Whether the progressive, anti-regulatory alliance of government and big business has public opinion on its side is a moot point: one survey by the PR firm Edelman last year showed that some 50% of opinion formers in Europe trust environmental campaigners more than governments. Other research has indicated that three-quarters of opinion formers think legislation is necessary to make companies act in a socially responsible way.

There is clearly a lot to play for in the CSR game, not least the possibility of reversing the decline in public trust of big business, which many think has been going on for 30 or 40 years. But, as in politics, the entire project is at the mercy of events - an Enron-type scandal in the UK, another blunder by a big oil company, and the green and virtuous credentials that progressive companies are nurturing could disappear in a puff of smoke.

1776: The 'Intellectual Ancestor of Modern Economics' and champion of the anti-CSR Lobby, Adam Smith lays forth his 'Invisible Hand' theory: Self-interest is the way forward - stick to running your business and the world will take care of itself.

1848: Yorkshire wool baron and pioneer of caring capitalism Titus Salt escapes Bradford - then our poorest and most polluted town - to build a new mill just outside. Over 20 years he creates Saltaire, a model community for his staff, where every home has running water.

1904: Sweet manufacturer Joseph Rowntree builds Rowntree Village in York. Houses centre around a community hall. In 1906 he sets up a pension fund; in 1916, a profit-sharing scheme; and in 1918, staff holidays - a revolutionary concept at the time.

1911: David Lloyd George, then Chancellor in Asquith's Liberal Government, lays the foundations for state involvement in CSR with his National Insurance Act. It requires firms to make contributions to unemployment and sickness insurance for all staff.

1952: An anticyclone settles over London on 4 December, causing the five-day great London smog, which claims 4,000 lives. The Government sets up the Beaver Committee the following year to tackle the issue of industrial smoke. In 1956, the first clean air act is passed.

1967: A huge spill from BP Oil tanker Torrey Canyon off Cornwall is perhaps the first ever media-led eco-disaster. In 1980, the Exxon Valdez spill off Alaska prompts the US to phase out single-hulled tankers. Last year's Prestige spill off Spain leads the EU to consider similar new laws.

1969: Ralph Nader founds the Center for Responsive Law in the US to expose corporate abuses and a lack of enforced regulation. Previously, his indictment of the car industry's poor safety standards, 'Unsafe at any speed', led to the 1966 Motor Vehicle Safety Act.

1971: Greenpeace is founded in Canada as a response to US nuclear tests. It excels in headline-grabbing direct action for environmental causes. After its flagship, Rainbow Warrior, is sunk in Auckland in 1985, France admits that its secret agents were responsible.

1976: Anita Roddick opens the first Body Shop branch in Brighton. The company pledges itself 'To the pursuit of social and environmental change'. Workers are vetted to ensure they live up to this philosophy, and staff at HQ spend a day a month working with disadvantaged children.

1977: Nestle feels the chill wind of protest when a global boycott is launched in the US by INFACT (Infant Formula Action Coalition). In 1980, a similar campaign begins in the UK, slamming the 'Unethical marketing of breastmilk substitutes'. The campaign continues today.

1982: Sir Alastair Pilkington sets up Business In The Community to forge links between business, trade unions, government, local authorities and communities. In 1986, BIC launches the Per Cent Club, made up of firms that invest at least 1% of pre-tax profits in the community.

1984: An explosion at a Union Carbide plant in Bhopal, India, kills 8,000 people in the world's worst industrial accident. In 1986 the case for compensation is moved from the US to India. India settles out of court for just dollars 470m, half of which is still in government coffers.

1992: CSR dominates the UN Conference on Environment and Development - aka 'The Earth Summit' - in Rio de Janeiro. More than 100 presidents and prime ministers produce Agenda 21, a blueprint for reversing environmental damage and tackling world poverty.

1993: Transparency International, an anti-corruption group, is formed in Berlin. Chaired by ex-World Bank Official Peter Eigen, TI tackles corruption in developing states and the g7. Its 2002 Corruption Index shows a fall in the honesty ratings of the UK and US.

1995: Greenpeace calls for a boycott of Shell over its plans to sink its oil-storage platform Brent Spar. Shell's sales in Germany plummet, and it backs down. However, fears that the new method of disposal could be even less eco-friendly damage Greenpeace's credibility.

1997: CSR grows up as the Global Report Initiative is launched at the UN in New York. This intends to put sustainability reporting on a par with financial reporting and has established itself as an industry standard used by many corporations as their sustainability benchmark.

1999: The Dow Jones Sustainability Index is launched in the US. The index is restricted to companies committed to green technologies and good corporate governance. In July 2001, the FTSE launches its own UK sustainability index, the FTSE4GOOD.

2000 MARCH: Britain is the first state in Europe to have a minister for CSR when Kim Howells is appointed. A year later he publishes the first ever government report on CSR, pledging its commitment to CSR and exhorting good practice. The present CSR minister is Stephen Timms.

2000: OCTOBER Controversial BBC documentary, 'Gap & Nike: No Sweat', reveals that clothing for Nike and Gap is being made in Cambodian sweatshops. Details of forced overtime and low wages spark a worldwide campaign against Nike that remains active today.

2001 MARCH: George W Bush withdraws US support for the Kyoto environmental agreement, breaking election promises to impose limits on CO2. By mid 2002, the EU and Japan have ratified Kyoto but the US - which accounts for 36% of all CO2 emissions - continues to opt out.

2002 JANUARY: Former Greenpeace boss Lord Melchett astounds his ex-colleagues by taking a job at PR firm Burson-Marsteller. BM's clients over the years have included gm food giant Monsanto, The Indonesian Government, BP and Union Carbide after Bhopal.

2002: Judging by the amount of government and media attention it generates, CSR has arrived. In April, MEPs reject mandatory company reporting on CSR, but in July a DTI White Paper recommends that directors of 'Economically significant' companies take into account the broader impact of their business activities on society. A month later, The 'Rio + 10' Earth Summit at the Sandton Convention Centre in Johannesburg (above) makes headlines as many key political figures fail to attend - notably George W Bush - and protesters claim it has been hijacked by big business. By November, a private members' bill on CSR falls off the Commons agenda. But the year ends on a high, with the Copenhagen Centre's campaign report on European CSR Excellence 2002-03, the first ever overview of CSR activities in Europe. Britain emerges at the head of the field, ranking joint first with the Netherlands. The report goes on to conclude that more and more businesses are establishing CSR initiatives and that socially responsible business is here to stay.

OWNING UP: SCOTTISH POWER GAINS CREDIBILITY WITH HARD FACTS

One curious aspect of CSR is that many companies considered to be leaders in the field are ones that, by their very nature, damage the environment and pollute the planet - BP, Shell, Ford, and the electricity generator Scottish Power.

A top-level commitment to CSR, backed by a sustainability report that includes hard facts as well as trumpet-blowing, played a large in winning the Business in the Community Company of the Year award last year (2002) for Scottish Power, which operates in the UK and the US.

It is a 30-page production that describes strategy, goals, 'stakeholder engagement' and 'environmental governance'. It also has figures for water use; emissions data for sulphur, nitrogen and carbon gases; cross-references to the Global Reporting Initiative guidelines; and a certificate from URS Verification Ltd.

'The golden rule is that even if we haven't achieved what we set out to achieve, we're open and transparent about it,' says Dominic Fry, corporate communications director. 'You get added credibility for owning up. Next year, we'll have a full-blown social and environmental report that will include all the things we do with the community.'

UNITED PARCEL SERVICES IS LATE IN DELIVERING THE FIGURES

High on the list of sober and responsible US corporations comes United Parcel Service, which runs the world's 11th-largest airline and shunts nearly 14 million packages around the world every day. But its first CSR report won't come until later this year. 'Our company was founded on trust and it continues that way,' says Mike Esken, the chairman and chief executive officer. 'The staff have good pay and stock options, the directors pay themselves modestly and we've always been concerned about the environment.

'We been experimenting since the 1940s in using electricity and natural gas to power our vans, and we installed new, quieter engines on all our aircraft rather than going for the cheaper option of fitting 'hush kits'.

Our envelopes have an extra flap so you can use them twice.' But even if you're doing well, you need to be seen to be doing well, and so far UPS hasn't published figures or targets for CO2 emissions. When its CSR report does appear, it will focus on the workforce (benefits, diversity, human rights); the environment (alternative fuels, reducing emissions); philanthropy (it has always done a good deal of this); and relations with its stakeholders (customers, communities and suppliers).

BRITISH AMERICAN TOBACCO IS THE BUTT OF SCEPTICISM

The news that BAT has produced a CSR report is often greeted with a loud guffaw, as if Genghis Khan had announced the appointment of a PR consultant. How can a company with a lethal product be socially responsible? The anti-smoking group ASH calls the whole idea laughable. BAT's social responsibility committee, chaired by former the chancellor and BAT deputy chairman Ken Clarke, is trawling for answers. BAT's CSR report last summer defined targets for reducing energy use, water consumption, CO2 emissions and waste production. And the firm committed itself to enlightened employment practices.

But only 34 out of 167 stakeholders invited to consult with BAT agreed to do so, and their main concerns were about BAT's enticement of children to smoke, and its ruthless marketing - it was caught on TV handing out packets of Benson & Hedges to teenage volleyball players in Gambia. BAT helped produce the International Tobacco Products Marketing Standards, intended to bring worldwide marketing in line with UK restrictions. But will it fund anti-smoking campaigns among the young? Er, not our job, it said. So it's hard to escape the incompatibility between its business interests and people's health.

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Subscribe

Get your essential reading delivered. Subscribe to Management Today