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'Doing Sustainability: Moving from Why to How' Sydney, 3 May 2005
Judy Mercure
CEO, Calibre Communications, Avalon NSW
Article Text
The rise of the Corporate Social Responsibility (CSR) movement over the past decade has coincided with increasing criticisms of free market business models - with corporations focusing exclusively on maximising profit and delivering value to shareholders having increasingly short life spans. Such corporations have been likened to viruses that inevitably kill off their hosts, by not looking after the conditions that ensure survival and health. An alternative, the critics argue, is to encourage and report on, corporate activities that benefit not only shareholders, but also the communities in which such corporations operate and the environment that supplies corporate resources.
One of a series of annual one-day conferences offered by Edmonds Management, 'Doing Sustainability: Moving from Why to How' preached to an apparently converted audience of 180. Judging from their positions on the participants' list, attendees' responsibilities were primarily corporate affairs, branding, community relations and related roles. Many large Australian companies and organisations, perhaps keen to retain or retrieve their icon status, sent attendees, including Shell, AGL, CSIRO, Westpac, AMP, Boral, Medibank, National Australia Bank, Hardy Wine and Lion Nathan.
There were also a number of business development managers possibly researching new opportunities from major management consulting firms like KPMG, Ernst & Young and legal firms like Freehills. Does this turnout suggest that CSR and Triple Bottom Line (TBL) reporting and analysis has become the latest brand management fad? Not entirely. City Councils were also well represented, as were major environmental groups like Clean Up Australia and the World Wildlife Fund whose brand positioning around environment protection has never wavered.
Selected presentations are summarised below but these are not complete. Perspectives have been selected for reporting that represent financial, government, business, and Australian viewpoints on the benefits of, and challenges to, implementing CSR.
Setting the Scene: Developments in CSR
The conference's keynote speaker, John Elkington, is one of the earliest architects and proponents of CSR. He has successfully worked with innovative firms like Body Shop in the UK to report in the 1990s on the social and environmental impacts of their business operations as well as their financial results. CSR harks back to a venerable history that has its origins in the 1960's Club of Rome Report on Limits to Growth and Schumaker's Small is Beautiful, which argued that modern society's emphasis on growth and increasing levels of consumption was unsustainable for a small ecosystem like Planet Earth.
Elkington described the decade-long evolution of CSR in terms of 'waves of interest'. The first wave focused on impact on the environment, the second on attempt to convince consumers to 'buy green'. Only around 1998 did a serious effort to incorporate TBL reporting emerge in corporate annual reports. The current spike of interest, according to Elkington, has come about as a result of some of the negative impacts of globalisation. Efforts to embed and professionalise CSR as an element of standard corporate governance good practice have moved away from the TBL of the 1990s. This is because experience with TBL reporting has encouraged companies to initiate, and report on, corporate contributions organised by Economic, Environmental and Social silos, some of which have been artificial add-ons to corporate strategy.
CSR experts have as a result attempted to identify audit and reporting frameworks that position CSR initiates at the heart of corporate strategy. Elkington mentioned a number of helpful government initiatives, primarily from the European Union, including removal or redesign of some government subsidies which encourage detrimental environment practices, mandatory reporting on emission levels by companies, and legislation and enforcement that facilitate incorporation of CSR in mainstream corporate good practice. Driving CSR through a 'blended values' approach via informing Boards, Branding, and Business models' is thus at the top of the current CSR agenda, according to Elkington.
Globalisation drivers of CSR internationally, according to Elkington, include the impacts of the enlargement movement which is bringing emerging countries with different cultural and economic assumptions into the European Union. Another challenge is the rapid development of China, and a third is challenge of encouraging governments to take a more proactive role in health care, corruption reduction, weather and climate change, after an era of minimal government intervention.
Each speaker was asked to identity three priority issues they believed needed to be address in implementing CSR. Elkington's choices were 'Blended values' as opposed to silo initiatives; a focus on scalability and repeatability of initiatives, and motivating emerging markets to take up the CSR agenda.
To drive home the message the CSR should be a key component of corporate governments, Elkington presented a short interview with Standard and Poor's Managing Director, George Dallas, via video from the US. Dallas pointed out that the Enron scandal did much to encourage greater transparency in corporate reporting. Standard and Poor's assessments of the economic viability of organisations was expanded to include a TBL-style focus on how well the interests of non-financial stakeholder segments were served by corporations. In closing, he stressed the need for rigorous reporting mechanisms that avoided the appearance of 'green-washing' by companies.
Doing Sustainability: A Financial Perspective
To explain how shareholder value has become some a dominant corporate value, Richard Murray, Chief Claims Strategist for the insurance giant, Swiss Re, presented an illuminating historical perspective on the recent phenomenon of the corporation as a profit machine.
Murray outlined the development of the corporation simply and concisely. In the 17th Century, when owners, managers, and workers of enterprises, usually agricultural, lived in the same community, they shared a commitment to the community's survival. In the 18th Century, the emergence of trades separated consumers from owners, managers, and workers, bringing into play for the first time the separation of stakeholders. In the 19th Century, the Industrial Revolution created a divide between labour and managers and owners. However, it was in the 20th Century that the creation of capital markets resulted in a dramatic separation of managers from owners, often placing a great distance between owners and the enterprises they owned. Capital was professionally managed to ensure corporate growth and profitability. The 21st Century saw the emergence of mature, intermediated markets. Corporations were managed by investment funds; stakeholders were managed by managers. Control of corporate behaviour rested with investment fund managers, and Boards of Directors intermediated between managers and investment funds.
The results of this incremental creation of distance between enterprise entities is that, at present, owners are not responsible for decision-making; stakeholders are left to deal with management, who are not rewarded for dealing with stakeholders; Board of Directors are not capable of dealing with stakeholders, management and investment funds. So the simplest principle, shareholder value, dominates, in Murray's view.
However, within this system, he said, we have forgotten who the shareholders are. In fact, they are all the players in the corporate system, that is, us. And what, Murray asked, do they value? They value maximised funds when they need them, not all the time, and they do not value maximised profits for their own sake. If asked, most shareholders would like to know that profits they earned were earned honourably. Most shareholders do not like to think that their profits are earned at the expense of an organisation's survival.
Single-minded dedication to maximising profits all the time has resulted in a number of negative impacts on the environment, one of the most notable of which is climate change. Swiss Re's metrics showing payouts for property damage and loss as a result of natural catastrophes has escalated from US$5 billion a year in 1970, to US$15 billion a year in 2000, and amounted to a staggering $45 billion in 2004. Nor is the final payment figure the anomalous result of the Boxing Day tsunami. Insurance payouts go to individuals who buy policies. The average person in Sri Lanka spends $7 per year on insurance. The bulk of recorded payouts go to the developed world.
Murray pointed to the need to remove impediments to recognising climate change factors in market analyses. In his view, reporting on environmental challenges is underplayed by many staff members whose career development is dependent upon their recognition of opportunities, not risks.
Murray pointed to three priority issues associated with applying CSR to financial institutions: the first is that assessments and accounting for going concerns should shift their horizons to a minimum of ten years; the second is that concerns need to understand the hazards on the horizon; and the fourth is that concerns need to encourage development of competencies to identify and remedy hazards.
Doing Sustainability: A Government Perspective
The Chief Executive of the UK Environment Agency is Baroness Barbara Young. She challenged the audience with the question of whether reporting on CSR has become for some organisations a proxy for engagement. Fewer than 50% of all UK companies report on non-financial issues apart from environmental impacts, primarily on water, waste and energy use. Most link their reporting to financial objectives and shareholder value. As reporting is voluntary, many companies report in a minimal, non-standard way, despite benefits they might enjoy as a result of a more comprehensive approach, including reduced costs, reduced risks, greater innovation, greater staff commitment, improved community reputation, and-understressed but important-because it is the 'right thing to do'.
Government can encourage CSR through regulations, advice and information, encouragement of voluntary initiatives, initiating fiscal and tax scheme (eg she referred to a UK 'pesticide tax'), and by encouraging producer responsibility schemes. They can also help create the right public climate through information and marketing. For example the EA has mounted a 'Cleaner business is good business' campaign, as well as participating in World Environment Day, where the public may make a pledge on a website to walk, not drive, to work; turn off the tap, save energy, among other measures. This has emerged as a popular campaign as members of the public can watch an online energy meter that shows how much energy they have helped conserve during the day.
Governments can also work with financial and insurance markets by encouraging environmental risk management, pollution inventories, and investment of pension funds in sustainable enterprises. Environmental impact and risk assessment tools may also be provided to industry by government. And of course, regulations can encourage CSR, although to avoid rejections, they need to be 'smart' and modern, outcome focussed, balance social and economic needs, proportionate to risks, streamlined and with minimised administrative burdens, and associated with flexible penalties for those who chose not to comply.
Young's selection of priority issues to address by government included providing clear and consistent signals and policies, creating complementary 'baskets' of measures, and encouraging the development of sustainable consumption and production policies.
Doing Sustainability: A Business Perspective
Deborah Dunne, Senior Vice President of Corporate Affairs and Global Citizenship for Hewlett Packard (USA), talked about the essential role support at the top of an organization was for CSR implementation, and particularly for ensuring that it drives values and behaviours throughout the organisation.
Hewlett Packard has had a community citizenship program, now a global community citizenship program, since the 1970s. Although it has evolved considerably over the years, it has been reinforced by goal setting, measurement and reporting across the organisation. Key components of Hewlett Packard's global citizenship strategy are illustrated in the graphic.
Key components of the HP citizenship strategy are philanthropy, government policy, privacy, ethics and governance, community engagement (including 'e-inclusion' which aims to reduce the distance between the information 'haves' and 'have-nots'), and attention to the environment. These components are delivered through 'enablers', including policy leadership, philanthropy and communications.
Priority mechanisms for delivering HP's strategy include:
- Addressing electronic waste, by working with Planet Arc to expand the take-back of consumables (eg printers and monitors), not only from coporate users, but also from private users;
- Raising standards in HP's global supply chain, by working with suppliers and competitors to establish a suppliers' code of conduct and to audit supplier compliance;
- Increasing access to information technology in developing countries, with Flagship projects in progress in rural India and South Africa.
Benefits HP has experienced as a result of the implementation of this strategy have included:
- Measurable positive impact on the brand, with positive press coverage, awards and recognition resulting.
- Business growth by differentiating the 'offer', getting access to government leaders, and exploiting HP's position as a thought leader.
- Enhanced public relations. risk identification and management.
Key priority issues for businesses to focus on in implementing CSR programs selected by Dunne included the need to define the core business and impact on it; the need to integrated sustainability and global citizenship into all business strategies; and the need to actively engage senior managers across the organization in all key initiatives.
Doing Sustainability: An Australian Perspective
Sam Mostyn, Group Executive for Culture and Reputation of the Australian insurance conglomerate, IAG (which includes NRMA), spoke about the challenges and benefits of implementing cultural change in the organisation based upon a redefinition of the organisation's purpose.
Mostyn worked with IAG staff and stakeholder for several months to develop a simplified but meaningful embodiment of the organisation's core business, which is represented in the graphic.
Staff and stakeholder of IAG saw the organisation's key competencies as focusing on Understanding risks and reducing both the risks themselves and the costs associated with risks, and paying claims. The purpose at the centre of all of these activities is to deliver stakeholder, societal, and employee value.
Core activities associating with delivering those key competencies included crime prevention, anticipating and avoiding impacts of climate change, supporting car-related decisions, and supporting health and well-being of customers.
Some of the most successful mechanisms for executing core activities included:
- Developing a smash repairers traineeship and scholarship program in smaller communities where youth unemployment was high;
- Working with St John's on first aid training and promoting courses via bus advertisements;
- Rating cards for environmental and safety performance using web-based 'Greensafe' car profiles;
- Developing 'Risk radar' for smash repairers, a software package that helps smash repairers manager their environmental and health safety operations;
- Supporting joint police/NRMA crime prevention vans;
- Providing 'Climate change for Austalia' information;
- Supporting the NRMA care flight for first aid at the site of emergency injuries.
Mostyn reported significant benefits to IAG through improved perception of the brand and improved staff morale and motivation, through a redefinition of staff employment as focusing on 'stewardship' and 'citizenship', rather than risk avoidance.
Mostyn's three key challenges on implementing CSR at IAG focused on improving the quality of fiduciary managers; overcoming skills shortages as a result of an aging population; and building trust.
Conclusions
There appears to be little doubt that sustainability and CSR as a mainstream corporate strategy faces a steep path to general acceptance, at least in Australia, if not elsewhere. Its lack of perceived 'sexiness' has persisted, despite the efforts of thought leaders like Sustainability's John Elkington
Acceptance lag is certainly a result of the perception that 'doing sustainability' is costly and places obstacles in the path of companies turning a quick buck and maximising profits for shareholders. Selling it, as the conference speakers attempted to do with considerable passion, can be hard work. The audience was interested, polite, but didn't appear to ignite, despite the sparks of passion from speakers. Disappointingly, most of the speakers came from overseas, with only two local experts presenting Australian case studies, Sam Mostyn of Insurance Australia Group and Prof Danny Sampson from the University of Melbourne.
The representation is consistent with Australia's international reputation as a relaxed, risk-averse, sun-kissed regional sales-office kind of country and a slow adopter of radical innovation models. Indeed, Australian innovation models have deviated little over the years from reliance on government subsidies that comprise most of Australia's innovation policy. Few if any innovation grants require a TBL assessment or CSR element in application requirements. Self-described thought-leaders like universities, CSIRO, and state and federal innovation agencies apparently sat quietly in the audience or stayed home in their offices, either unconvinced of the value of CSR, unaware of its merits, or-perhaps more likely-unwilling to take a stand that might not be acceptable to their corporate colleagues after two decades of intensive courting. It is surprising that the opportunity to demonstrate real thought leadership that CSR offers is embraced by Australia's knowledge organisations either not at all or in a somewhat tokenistic fashion.
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