Ethical evangelists

With the stark realities of global warming ever more evident, the public is fixated on finding sustainable ways of living and consuming.

by Richard Reeves
Last Updated: 09 Oct 2013

The anxiety is being picked up by leaders keen to be seen to be Doing the Right Thing, their saintly fingers crossed in the hope that it won't hit profits. A new chapter opens in the CSR story.

What do you get if you mix kids, toys, China and lead? A worldwide news story, for one thing, as the US toy company Mattel discovered to its cost this August. More than 18 million toys, including 'Sarge' trucks and Thomas the Tank Engine models, were recalled after the discovery that lead paint had been applied to some of them by Mattel's Chinese supplier. In the process, a veil was lifted from the reality of the manufacturing process in the Pearl River delta, in southern China - now the heart of the world's toy-making industry, where hundreds of thousands of young people, mostly women, split their lives between cramped dormitories and choking factories, where they churn out the cheap toys in which most American homes are drowning. Cheap toys mean cheap labour.

The Mattel case also illuminates the dynamics at work in the current chapter of the story of corporate social responsibility (CSR). Companies increasingly rely on supply chains that stretch around the globe, and are being held to account for the whole chain, rather than just the few links that they directly manage.

At the same time, the issues that excite the attention of consumers are of an increasingly international nature. In the Mattel case, the trigger was, of course, the safety of the children playing with the toys rather than that of the adolescents making them - but the story has now developed its own momentum, and the working conditions in China now figure in the consciousness of Western consumers, if perhaps not yet their conscience. Lastly, the Mattel mix-up showed the global outlook of the media: on the face of it, only the US and China were involved, but in practice the story ran in every market where parents buy toys for their kids.

This triple connectivity - of companies, issues and media - is the backdrop against which corporations are now obliged to operate, and to demonstrate that they are doing so responsibly. The combined power of concerned consumers and scandal-hungry global media outlets makes the market a volatile place. 'This is the third chapter of the corporate social responsibility movement,' says Seb Beloe, vice-president of research and advocacy at SustainAbility, a UK think-tank specialising in CSR issues. 'The pressure is now coming from the market - from retailers, customers and investors. There is now real economic value at stake.'

The economics of CSR are, however, complex and uncertain. The evidence that consumers are buying ethically is mixed, at best. Certainly, most of us tell pollsters that we care about the social and environmental trail of the products we buy, but only a handful actually spend time checking out the records of a firm before buying their bread, petrol or toys. If acting more ethically than a competing company is likely to raise costs, it might be seen as foolish from a financial perspective.

A good deal of the business case for CSR rests, then, on the potential risks and benefits to 'reputational capital'. Given enough bad press, a company will start losing out, whereas being seen as a good corporate citizen should attract customers and staff. There is clearly some truth in these claims. The question is, how much?

The current emphasis on market forces is in contrast to the origins of the CSR movement, which were regulatory rather than economic. The first iteration in the 1970s and '80s was concerned with the environment and driven by laws intended to clean up the air and water. Beloe says this first phase was marked by a 'compliance agenda', and the regulations were seen by most firms as a pure cost, providing work for lawyers rather than activists or consultants.

In the 1980s - at least, in the UK - a philanthropic dimension was added: Business In The Community, celebrating its 25th anniversary (see the MT Interview, p38), can lay a good claim to be the pioneer of this field. Companies were cajoled into competing with each other to be good, with their successes and failures tracked by various indices and memberships of certain groups. BITC's 'Per Cent Club', consisting of firms that give at least 1% of profits to good causes, is a classic example of this approach.

By the '90s, firms also faced growing pressure from non-governmental organisations (NGOs) and the media to improve their record on the environment and social issues. Nike was hammered for the child labour in its supply chain in Cambodia and Pakistan; and, in an iconic moment for the movement, Greenpeace worsted Shell in 1995 over the firm's plan to sink the redundant Brent Spar oil platform in the North Sea. It was a period when a few scruffy, media-savvy activists terrified the executives of the world's corporate giants. 'Companies realised that complying with national regulations was not enough,' says Beloe. Firms established CSR departments and directors, and then began to report on their social and environmental performance.

This 'ranking and reporting' stage lasted well into the Noughties, and continues to dominate the mainstream CSR agenda. But CSR departments are usually not the places to which high-flyers beg to be promoted. Until now, it has remained a sideline of business activity. That may change. As MT contributing editor Stefan Stern has written in the Financial Times, if corporate responsibility means anything, it concerns not only what companies do with the money they make, but how they make it in the first place.

Needless to say, the movement retains its critics, now largely in the form of either ferociously free-market pundits or radical campaigning groups. Anti-corporate poet Claire Fauset, from the pressure group Corporate Watch, dismisses the CSR movement as 'Companies Spouting Rubbish' and 'Complete Sidelining of Reality', and as simply a way of avoiding the tough regulation required to bring about real change. According to her, 'a genuinely socially responsible company would look so different from today's corporations as to be unrecognisable'.

In fact, the attitude of some firms towards regulation is warming, because it provides a level playing field. In a recent survey by PricewaterhouseCoopers, most businesses admitted that regulation was the single most effective way to change corporate behaviour. Part of the appeal of CSR, though, is that it offers a classic 'third way' between rapacious capitalism and state regulation, providing, in the words of Nottingham University academic Dr Jem Bendell, a form of civil regulation, lying between self-regulation by business and hard regulation by governments.

But can even civil regulation bring about the extent of the changes advocated by CSR evangelists? There are some green shoots of hope. In its latest incarnation as 'sustainability', CSR is being mainstreamed in some businesses, according to industry experts. Rather than being a bolt-on, it is now being embedded in the business model of some firms. The UK exemplar of this new, deeper application of the principle of responsibility is Marks & Spencer, which last year implemented a 100-point 'Plan A' to make the firm carbon-neutral, reduce the proportion of its waste going into landfill to zero, switch over time to organic cotton and move towards fairly traded products. In its latest campaign, M&S donated 5% of the purchase price on all sales of school clothes to support a Save the Children campaign to create schools in Uganda.

'We're doing this because it's what you want us to do,' said CEO Stuart Rose. 'It's also the right thing to do. We're calling it Plan A because we believe it's now the only way to do business. There is no Plan B.' The dramatic move by M&S confirms that corporate responsibility is entering a new phase. But it also highlights three key elements of the current state of play: the re-emergence of environmental issues; the reshaping of markets by companies, rather than consumers; and the quiet triumph of the moral argument for change.

After years of gradual education, climate change has burst into public, commercial and political consciousness in the past 18 months. David Cameron's restyling of the Tory party - 'Vote blue, go green' - is one political consequence of a profound shift in mood. Al Gore's An Inconvenient Truth, wild weather - from the real tragedy of hurricane Katrina to the surreal flooding of English towns - and reports of collapsing glaciers have signalled a new urgency on the global warming issue. 'Carbon' has assaulted the lexicon: carbon trading, carbon offsetting, carbon neutrality and carbon footprints trip off the tongue of all self-respecting executives. PR-conscious airline owners are keen to show their green apparel. 'We must rapidly wean ourselves off our dependence on coal and fossil fuels,' declares Richard Branson, chairman of Virgin.

'The focus is unquestionably shifting to the environment,' says Beloe. 'A few years ago we wrote a report titled Have We Forgotten the Environment?, which seems astonishing now.'

To the extent that a growing concern with climate change drives real change in corporations, this is good news. But there are dangers. In the rush to be green, companies might overlook other issues, such as health & safety, labour relations or local community impacts. It is pretty easy for a professional services firm to become carbon-neutral - which it could then parade as evidence of its angelic status, even if it treats women like rubbish, smashes unions, bullies employees and pays small suppliers late. Bad firms could greenwash their reputations clean. 'There is a real danger if climate change is seen as an isolated issue,' adds Beloe. 'In fact, it is a precursor of a whole range of environmental and natural resource issues.'

The M&S move also demonstrates that in many instances, companies are leading consumers, as much as the other way around. It's hard to prove that consumers are rewarding more responsible firms. But the fear that they will do so has forced other retailers to up their game. Tesco has announced plans to spend £600m on making its operations more sustainable and to introduce 'carbon labelling' on its products. Its boss Terry Leahy, sprinting to stay within hailing distance of Rose, has declared that 'the market is ready... we have to make sustainability a significant, mainstream driver of consumption.'

Once companies like Tesco in the UK and Wal-Mart in the US - working hard to reduce packaging waste and carbon emissions - start changing the way they do business, the market is, by definition, transformed, whether customers are actively demanding it or not. The OFT's August raid on Tesco and Asda in connection with allegations that they have been bullying their suppliers into lowering prices shows, however, that words and actions may not always agree.

In countless industries, standards have been raised almost unnoticed by the customer, and often because of the actions of one firm. Most DIY shoppers won't know that FSC timber is wood produced according to sustainability guidelines drawn up by the Forestry Stewardship Council, but because retailers - notably B&Q - insisted its suppliers meet the standard, the market is now dominated by FSC-approved wood.

The third dimension of the next phase of the movement is the readiness of some companies to act on ethical rather than economic grounds. Until now, the case for CSR has always been that responsible, sustainable businesses will be more profitable businesses. But in many instances the business case has been weak, subjective, or both. In a seminal book on the topic, Everybody's Business (2002) by David Grayson, one of the gurus of the movement, the chapter on 'Making a Business Case' doesn't appear until p218. The truth, often unspoken, is that when firms do change course, the decision is based as much on a moral sense as on any clear-cut link to higher profits. M&S insiders admit that Plan A was as much a matter of vision and instinct as quantifiable returns.

Rose's 'it's the right thing to do' tells most of the story. Says a senior consultant in the field: 'There are a number of chief executives who are really acting from a sense of moral responsibility and hoping the financial rewards will come. But they feel they have to dress up their actions in a business case.'

There are signs that this invisible integrity might break into the public domain. A report by a taskforce established by think-tank Tomorrow's Company to examine the future of global corporations, whose membership included representatives from BP, Ford, Alcan and McKinsey, suggested that a key next step was for tomorrow's global company to 'expand its view of success and redefine it in terms of lasting positive impacts for business, society and the environment'.

An explicitly ethical dimension is surely necessary for the deeper potential of the CSR movement to be realised. The competitive grounds for firms to radically alter their business model to measure, manage and improve social and environmental performance are, in many cases, pretty thin. CSR may not always be the 'win-win' that the movement has thus far insisted on (with fingers crossed behind its back). Perhaps we need businesses themselves to remind us that business profitability, economic growth and corporate competitiveness are not ends in themselves, but means to the more important end of a better life for us all. It's time, surely, for the movement to break out of the straitjacket of the 'business case' and recognise that real responsibility comes at a price.

 

PRICEWATERHOUSECOOPERS has the key to promulgating greenness

The middle-aged, well-dressed man threw his car keys on the table and challenged his neighbour: 'I will if you will.' But this was not a swingers' party. It was a meeting of the top partners from consultancy firm PricewaterhouseCoopers, gathered in Cambridge for a three-day course on sustainable development.

The car keys in question related to a Porsche 911, and the owner's dare was that he would trade in his boy's toy for something greener if his colleague would do the same with his Aston Martin. It was one example of the profound personal impact of the 'green-dip' session on attendees. The indulgent vehicles in which many proudly arrived became, for some, a badge of shame on the journey home.

More significant than these individual epiphanies is the shift within PwC towards more sustainable operations and greener service offerings. In July, the firm's frequent flyers received letters from management describing their carbon footprint. Every partner and employee is being advised on how to reduce their environmental impact. PwC has this year moved into one of the greenest office buildings in the capital.

Above all, the firm is integrating social, environmental and ethical issues into its whole range of auditing and advisory services and developing new lines to help its clients move further and faster towards sustainable development. 'There is a move from managing reputation to managing performance,' says Erica Hauver, head of the sustainability and climate change practice at PwC. 'It is increasingly being addressed in the core business model, and is therefore moving to the centre of our client services.'

This change is possible, at least in part, because the partners of the firm both run it and own it. There are no outside investors to keep sweet. If PwC decides to go green, it simply can. The partnership ethos also generates a culture that is receptive to long-term concerns. 'As partners of the firm, we are stewards of its future,' says Hauver, 'and that necessarily includes the future of the world it will operate in, and that our children will live in.'

If PwC is serious, not only about junking the Jags but transforming its business, the impact will be profound. If the world's biggest professional services firm, advising more companies than any other, goes green, who knows what the future might bring?

Andrew Saunders

 

Number of companies in the world publishing corporate responsibility
reports
, 1996-2006


1996 267

1997 365

1998 463

1999 639

2000 823

2001 1,179

2002 1,482

2003 1,833

2004 1,936

2005 2,153

2006 2,235

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