“BEST Sustainability Report (BSR)” Guideline: A 5-stage ... · 윤리경영이란 무엇인가 Business Ethics Principles/norms/sense of morality that must be abided while engaging

- 2007 © Copyright by Dong-Sung Cho - 1

“BEST Sustainability Report (BSR)” Guideline:

A 5-stage, Double-entry Approach

to Integrating Firm Competitiveness and CSR

Dong-Sung Cho

Professor of Strategy, Seoul National University

President, Korean Association of Academic Societies

Question:

Firm 1: $1 million profit, but subject to contempt by the

society in which it operates.

Firm 2: $500 thousand profit, but with love and respect by

the society.

Which firm do you want to have?

Which firm do you want to inherit to your children?

PART ONE

NEED FOR A NEW GUIDELINE

FOR SUSTAINABILITY REPORT


2 . 윤리경영이란 무엇인가

BusinessEthics

Principles/norms/sense of morality that must be abided while engaging in business activities

Narrow scope: provision/standard compliance and training

Broad scope: compliance with values and global standards

CorporateSocial

Responsibility

Considers the impact of business activities on the stakeholders

Obligation to pursue a socially desirable long-term goal that surpasses the standard as demanded by the law and the market

EnvironmentalProtection

The Club of Rome’s Declaration raised awareness on the catastrophic impact that resource depletion and environment destruction have on humanity

Businesses are made aware that they are the main culprits of resource depletion and environment destruction and of the obligations to take responsibility for the outcomes

1. TREND OF REPORTS FOR EXTERNAL STAKEHOLDERS


Business ethics

Principles/norms/sense of morality that must be abided while engaging in business activities

Narrow scope: complies with provisions/laws and conducts trainings

Broad scope: complies with values and global standards

CorporateSocial

Responsibility

Considers the impact of business activities on the stakeholders

Obligation to pursue a socially desirable long-term goal that surpasses the standard as demanded by the law and the market

EnvironmentProtection

The Club of Rome’s Declaration raised awareness on the catastrophic impact that resource depletion and environment destruction have on humanity

Businesses are made aware that they are the main culprits of resource depletion & environment destruction & of the obligations to voluntarily & involuntarily take responsibility for the outcomes

SustainabilityManagement

Triple Bottom Line: pursuit of economic, social and environmental performance

Development that meets the needs of the present generation while protecting the potential to satisfy the needs of the future generation

2. EMERGENCE OF SUSTAINABILITY MANAGEMENT REPORT


<Excerpt from WWF and Mandag Morgen (April 2002), Experiences and Opportunities from the Nordic Partnership>

3. FREQUENCY OF TERMINOLOGIES USED BY MAJOR MEDIA(Study of frequency of usage of the terminology by 12 major media groups over 7 years)


2. 윤리경영이란 무엇인가

EnvironmentSocietyEmployee ConsumerProd. facility

Environment management

Existing management

Customer management

Ethics management+ + +

Sustainability reportAnnual report

4. DOMAINS OF ANNUAL REPORT VS. SUSTAINABILITY REPORT

- 2007 © Copyright by Dong-Sung Cho - 8<Source: CorporateRegister, 2006>

5. NUMBER OF SUSTAINABILITY REPORTS BY COUNTRY


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6. NUMBER OF SUSTAINABILITY REPORTS IN KOREA

- As of May 2007, 31 companies in Korea have published the report.

IBK/KNHC/Korea Gas Safety Corporation /Woongjin Think Big /Hana Bank

2007 (5 companies)

KT / SEC / Yuhan-Kimberly / Woongjin Coway / LG Electronics / Daewoo Securities / SK Telecom /KOMPO / KOSEP / GS Caltex

2006 (10

companies)

KEPCO / SK Corp. / Korean Air Lines / Shinhan Bank / HMFI / Hanwha Chemical Corp. / Lotte Dep’t Store / Korea Water Resources Corporation / Korea Land Corporation

2005 (9 companies)

Posco / BAT Korea / Diageo Korea2004 (3 companies)

Samsung SDI / Hyundai Motor / Kia Motors / Korea Dow Corning2003 (4 companies)

CompanyYear


• Defining Report Content• Defining Report Quality• Setting the Report Boundary• Profile• Disclosure on Management Approach• Performance Indicators• Sector Supplements

Developed by the U.S. non-governmental organization, Coalition for Environmentally Responsible Economies (CERES) and United Nations Environment Program (UNEP) in 1997 An Exposure Draft for voluntary use by organizations for reporting on the economic, environmental, and social dimensions of their activities, products, and servicesA newly revised version, “G3” is slated to be published in October 2006 after revision in 2002 (“G3” slated for publication)

[P

AR

T

II

]

GRI Guideline: A universal standard that comprises various indicators for sustainability report

StructureC

haracteristics

7. MAJOR GUIDELINES: GRI GUIDELINES


Announced in 1976, amended four times, and currently adopted by 33 countriesSpecific guidelines developed for the environment sector in June 2004 (evaluates the entire process of environment management system, information disclosure, risk response, enhancement of environment-related performance, accident prevention, training, partnership establishment)

OECD MNEs Guidelines: International behavior standards for multinational companies (MNC)

Chapter 2 Contains specific recommendations on eleven provisions (human rights, sustainabledevelopment, local capacity building, human capital, governance, and etc.)

General Policies

Addresses major aspects of corporate behavior in this area including respect for worker’s rights, child and forced labor, non-discrimination, support collective agreements, and hiring and training of local hires

Employment and Industrial Relations

Chapter 4

Recommends regular disclosure on all material matters regarding the enterprise such as its activities, ownership, financial status, and performance, and encourages communication in areas where reporting standards are still emerging such as social, environmental and ethical reporting

DisclosureChapter 3

Recommends transparency, disciplinary procedure, prevention of illegal political contributions Combating BriberyChapter 6

Calls on enterprises to respect both the letter and spirit of tax laws

Emphasizes the importance of an open and competitive business climate and discourages entering into agreements that undermine fair competition

Recommends intellectual property rights reporting, transfer of technology and know-how, establishment of relation with local universities and research institutions

Recommends that enterprises satisfy health and safety-related standards, provide information, handles consumer complaints, and respect consumer privacy

Makes recommendations concerning development and maintenance of environmental management systems, goal setting, regular inspection of progress, evaluation of the entire process, and trainings

Sets out the principles which underlie the Guidelines, their significance, and the role of the government

EnvironmentChapter 5

Science and TechnologyChapter 8

TaxationChapter 10

CompetitionChapter 9

Consumer Interests

Concepts and principles

Chapter 7

Chapter 1

StructureCharacteristics

8. MAJOR GUIDELINES: OECD MNES GUIDELINES


Enacted in Jan., 1999. Comprises of 10 principleson four categories including human rights, labor, and environmentThe Global Compact seeks to promote responsible corporate citizenship so that business can be part of the solution to the challenges of globalization in the in the areas of human rights, labor and environment areas of human rights, labor and environment The Global Compact provides the most universal indicators that serve as the foundation of all indicatorsSets forth the minimum compliance standards for businesses to prevent free ride of unethical businesses

Human rights1. Businesses should support and respect the protection of internationally

proclaimed human rights; and2. make sure that they are not complicit in human rights abuses

Labor3. Businesses should uphold the freedom of association and the effective

recognition of the right to collective bargaining;4. the elimination of all forms of forced and compulsory labor;5. the effective abolition of child labor; and6. the elimination of discrimination in respect of employment and

occupation.

Environment7. Businesses should support a precautionary approach to environmental

challenges;8. undertake initiatives to promote greater environmental responsibility; and9. encourage the development and diffusion of environmentally friendly

technologies

Anti-Corruption 10. Businesses should work against all forms of corruption, including

extortion and bribery.

UN Global Compact: Spearheaded by Secretary-general Ban Ki-moon, a

commitment made by businesses to voluntarily abide by the code of conducts

StructureCharacteristics

9. MAJORGUIDELINES: GLOBAL COMPACT


Investment-driven, rather than performance-driven

Stakeholders are interested in the results rather than the investment itself.

1

Without objective auditing by responsible entities, the report is merely a piece for PR purpose.

No auditing2

High hurdles

Smaller companies have hard time reaching the expected level. Only the major global companies can meet the target.

3

8. CRITICISM ON THE MAJOR GUIDELINES (1, 2, 3)


Until the 20Until the 20thth century, firms have pursued a century, firms have pursued a single objective of maximizing single objective of maximizing profitprofit..

In recent years, however, NGOs have demanded firms to In recent years, however, NGOs have demanded firms to ““act responsibly act responsibly toward the societytoward the society”” in which they operate. The firms responded with in which they operate. The firms responded with ““Sustainability management.Sustainability management.””

But But ““Sustainability managementSustainability management”” requires firms to be internally competitive so requires firms to be internally competitive so that they can deliver what is expected. To do so, a firm typicalthat they can deliver what is expected. To do so, a firm typically goes through ly goes through innovative and creative management.innovative and creative management.

In this way, corporate managers are practicing management that iIn this way, corporate managers are practicing management that is consistent s consistent with both instinct and reason.with both instinct and reason.

8. CRITICISM ON THE MAJOR GUIDELINES (4)

NGO-Perspective4


Past

Future

Internal stakeholder External stakeholder

Annual report

?

Ethics report

CSRreport

Environmentalreport

Sustainability report

10. PRESENT POSITIONS OF THE TWO REPORTS

?

PART TWO

INTRODUCING A NEW GUIDELINE:

“BEST” SUSTAINABILITY REPORT


BEST Stands for “Business Ethics is the Source of Top performance.”

BEST Forum was inaugurated by a group of Korean firms in March 2003.

Best practices in ethics management are discussed in the monthly BEST Forum.

CEOs study ethics management in the BEST CEO Club every three months.

In its 1st anniversary in 2004, 12 CEOs pledged to be personally responsible for ethics management in their respective organizations. The number of CEOs who participated in the annual pledge ceremony grew to 31 in 2005, 56 in 2006, and 60 in 2007.

The pledging ceremony in 2007 was conducted in conjunction with the signing of the Global Compact – an initiative being spearheaded by UN Secretary General Ban Ki-moon.

In 2006, BEST Forum developed the “BEST Sustainability Report (BSR) Guideline,” which was adopted by the Ministry of Commerce, Industry and Energy (MoCIE).

1. INTRODUCTION OF “BEST FORUM”


1) Domain: Production facility + Employees + Consumers + Society + Environment

2) Reporting system: A double-entry method using content and process as two dimensions

3) Compatibility with other guidelines: Inclusive of GRI guideline

4) Time scope of reporting: covering both the past and future of a firm

5) Focus: on the causes and results more than investment itself

6) Method of reporting: quantification of soft-objectives

7) Reporting standard: 5-phase approach depending on complexity of management

8) Report auditing: objective auditing by an external institution for quality assurance

2. CHARACTERISTICS OF BSR


3-1. A NEW DOMAIN IN THE “BSR” GUIDELINE

EnvironmentEmployeeProd. facility SocietyConsumer+ + + +

+ +

Creativity management

Environmentmanagement

Existing management

Customer management

CSR management

Ethics management

Innovation management


[0] Economic management that pursues financial performance (profit),

[1] customer management that pursues customer performance (brand value),

[2] CSR management that pursues social performance (reputation),

[3] environment management that pursues environment performance (green value)

are the content of management, and

[0] Existing management,

[1] ethics management,

[2] innovation management,

[3] creativity management

are the process of management.

3-2. REPORTING SYSTEM: THE DOUBLE-ENTRY METHOD


THE DOUBLE-ENTRY METHOD

-Customer satisfaction-Enhanced customer value-Brand management

[1]Customer management that pursues customer performance (brand

value)

[1]Ethics management

[3]Environment

management that pursues environment performance (green

value)

[2]CSR management that

pursues social performance (reputation)

[0] Economic management that pursues financial performance (profit)

Process

Content

-Raw materials-Energy, water-Biodiversity-Emission

- Labor and human rights-Society-Product responsibility

-Customer-Supplier-Employee-Capital provider

(3)Creativity

management**

(2)Innovation

management*

[0] Existing management



Ethics management

CSR management

Environment management


BSR

Profile

Economic performance

Social performance

Environmental performance

GRI

CSR

Eco-efficiency

Innovation &Technology

Ecosystem

Risk

WBCSD

SD & Market

In addition to the elements covered in existing global sustainability reports, BSR analyzes elements such as innovation management and creativity management, and thus contribute to the assessment of the future value of a business

* WBCSD: World Business Council for Sustainability Development

3-3. COMPATIBILITY WITH OTHER GUIDELINES


The BSR analyzes the past, the present and the future activities and performances of an enterprise


Ethics management

CSR management

Environment managementCreativity

management

Past Present Future

3-4. TIME SCOPE OF REPORTING


BSR attempts to identify the results of sustainability management as well as its causes and performance

CEO

Internal resources

Business environment

Investment in sustainability management

Performance of sustainability management

Input Process Output

Existing method

BEST Sustainability Report

3-5. FOCUS: ON CAUSE AND EFFECTS


Framework of BSR:

GRI is used as the guideline for sustainability management activities but tends to focus on investment in mechanism (system). To complement the limitation of GRI, BSR includes the subject, environment, resources that impact sustainability management activities

VVLeadership

Ethics management

VVVEnvironmental system/investment

VVVAdded-value activity

VVVVPrincipal activities

VVVVSupplier

VVVVLocal community

VVVVCustomer

VVSocial responsibility leadership

CSR management

VVVVGovernance

VVVVEthics management mechanism

VVEthical leadership

Ethics management


Innovation management VVVVInnovation management

ResultCause

V

Mechanism

VVVCreativity management

PerformanceResources Environment Subject

Elements of GRI Guidelines


BSR quantifies sustainability performance

1. The ultimate goal of an enterprise is to enhance the corporate value going forward.

2. The goal of sustainability management is also to enhance the corporate value to become a sustainable enterprise.

3. But corporate value must consist not only of profit but also of image, brand, reputation, and long-term competitiveness.

4. These elements that comprise the corporate value, which are currently not within the scope of management of a CEO, need to be quantified in order to become the target of management.

5. These elements can then be converted into an individual criterion, and subsequently integrated to ultimately create a broad and common indicator.

6. BEST Forum is currently developing a sustainability management index for the quantitative assessment of the sustainability management activities of firms.

3-6. METHOD OF REPORTING: QUANTIFICATION OF SOFT OBJECTIVES


Global indicators are designed for multinational enterprises and therefore may be vast and difficult to apply in certain businesses, whereas BSR guidelines can be applied in a phased manner as according to the phase of the corporate reporting of a business.

Creativity managementCreativity management

Customer

Leadership

Governance

Ethics management system

Ethical leadership

Ethics management

Innovation managementInnovation management

Added-value activities

Ethics management

Principal activities

Environmental system/investment

Leadership

Local community

Strategies

for resolving

the issues

that were

identified in

Level 1~4

and sets a

new goal

Perform-ance

Causes

(Subject,

Environment,

Resources)

MechanismActivitiesSupplier

CSR management

Level 5Level 4Level 3Level 2Level 1Indicators

3-7. REPORTING STANDARD: 5-PHASE APPROACH


As well as being the source of an investor relations information, a sustainability report also serves as an objective evaluation system

Just as an audit report is produced for an annual report in line with strict accounting principles, a sustainability report also requires an audit reporting system based on objective criteria

BSR proposes a standardized assurance method for sustainability reports for the identification of the level of sustainability management in a business and for the comparison of businessesBSR examines the level of compliance with BSR and GRIBSR offers different reporting phases for businesses in different development stage (phased report validation)BSR offers a grading system that incorporates both materiality & completenessAssures qualitative performances (environment/society/innovation management and creativity management performance)Presents assessment results and proposes measures for improvement (경영권고서한)

BSR is assured through an objective auditing by an external party.

3-8. REPORT AUDITING FOR QUALITY ASSURANCE


BSR comprises all elements of the economic activities of a business that are not included in

the annual reports

4. DUAL APPROACH IN CORPORATE REPORTING SYSTEM

Past

Future

Internal stakeholder External stakeholder

Annual report

BESTSustainability

Report

Documents

“BEST Sustainability Report (BSR)” Guideline: A 5-stage ... · 윤리경영이란 무엇인가 Business Ethics Principles/norms/sense of morality that must be abided while engaging