Australia Corporate Responsibility — A Guide for Australian Directors · 2013-08-09 · FOOTPRINT A measure of a individual or organisation’s impact on the ... Gas that contributes

Australia

Corporate Responsibility —A Guide for Australian Directors

“Corporations are not responsible for all the world’s

problems, nor do they have the resources to solve

them all. Each company can identify the particular set

of societal problems that it is best equipped to help

resolve and from which it can gain the greatest

competitive benefit. Addressing social issues by

creating shared value will lead to self-sustaining

solutions that do not depend on private or government

subsidies. When a well-run business applies its vast

resources, expertise, and management talent to

problems that it understands and in which it has a

stake, it can have a greater impact on social good than

any other institution or philanthropic organisation.”

Porter, M.E. and Kramer, M.R. “Strategy and Society: the link between competitiveadvantage and corporate social responsibility,”

Corporate Responsibility: A Guide for Australian Directors

ForewordThe purpose of this Guide is to explore the idea of corporate social responsibilityor, as it is now increasingly referred to, corporate responsibility (CR). Althoughwritten with company directors in mind it may also be helpful to senior managerswho are responsible for implementing Board decisions.

A great deal has already been written about CR and the flow of opinion andinformation is still growing. In part, this is a motivation for the preparation ofthe Guide. As directors are already confronted by so much information on somany seemingly vital business topics, extreme or simplistic views can sometimesappear most compelling to the time poor.

The other motivation for writing this Guide is an unashamedly subjective one.The authors feel that CR, at least as we define it, is not only now a permanentfeature of the corporate landscape, it has the potential to be a valuable competitivetool when properly used.

A glossary of terms and acronyms begins the Guide.

AcknowledgementsLed by Andrew Beatty, this Guide has been prepared by members of the Environmentand Environmental Markets team in Sydney, and, in particular, Evan Williams,Paul Curnow, Louisa Fitz-Gerald, Eric Knight, Karen Gould and Samantha Brand.

The law is stated to be correct as at March 2007.

Baker & McKenzieSydneyAustralia

Andrew Beatty is a coordinator ofBaker & McKenzie’s globalcorporate responsibility practice.Baker & McKenzie’s corporateresponsibility team advises clientsaround the world on current andemerging legal and policy trends.

Andrew BeattyPartnerTel: +61 2 8922 [email protected]

Disclaimer

Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used inprofessional service organisations, reference to a “partner” means a person who is a partner, or equivalent, insuch a law firm. Similarly, referenceto an “office” means an office of any such law firm.

The information contained in this guide should not be relied on as legal or investment advice and should not be regarded as a substitute for detailed advicein individual cases. No responsibility for any loss occasioned to any person by acting or refraining from action as a result of material in this guide is acceptedby Baker & McKenzie.

The law is stated as at March 2007, unless otherwise indicated.

©2007 Baker & McKenzieAll rights reserved.


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ContentsGGlossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

1. Introduction – CR What does it mean? . . . . . . . . . . . . . . . . . . . . . . . . . . . .51.1 CSR or CR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

1.2 Our definition of CR in this Guide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

1.3 Approaches to CR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

1.4 The “business” approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

2. CR: Some Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82.1 Global Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

2.2 Australian Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

2.3 Socially Responsible Investment (SRI) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

3. Voluntary CR Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .123.1 Voluntary Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

3.2 Voluntary Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

3.3 Market and Industry Based Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

4. CR: Legal Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .214.1 Traditional obligations of a CR nature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

4.2 Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

5. CR: Key Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .265.1 Social . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

5.2 Labour. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

5.3 Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

5.4 Transparency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

6. CR: Is it for you? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .396.1 The bottom line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

6.2 Risk management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

6.3 Employee recruitment and retention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

6.4 Beyond compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

6.5 Brand image and reputation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

7. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43

8. Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44

9. Websites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47


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GlossaryACCOUNTABILITY 1000 AA1000. International standard for independently verifying the social and ethical accounting,

auditing and reporting of companies developed by the UK-based Institute for Social and EthicalAccountability (ISEA).

AS 8003-2003 Australian Standard on “Corporate governance - Corporate social responsibility.

ASX COUNCILRECOMMENDATIONS

Principles and Recommendations issued by the ASX Corporate Governance Council outlining aframework for good corporate governance which applies to listed companies and trusts. Theyare not mandatory requirements to which companies must adhere but, under the ASX ListingRules, listed entities must report against the Recommendations annually under an “if not, whynot” reporting requirement.

CAER Centre for Australian Ethical Research.

CAMAC Corporations and Markets Advisory Committee. This committee established under Part 9 of theAustralian Securities and Investment Commission Act 1989, advises the Australian Governmenton the operation and reform of corporations legislation, the efficiency of financial markets andthe regulation of companies generally.

CARBON NEUTRAL Phrase used to describe an activity that produces no net Greenhouse Gas emissions. Prominentcompanies including IAG, HSBC and BSkyB have adopted the goal of attaining carbon neutralstatus. A company can achieve carbon neutral status by reducing their overall emissions andpurchasing carbon offsets (e.g. carbon credits) or investing directly in activities that reduce theamount of CO2e in the atmosphere.

CDP4 The Carbon Disclosure Project is a program where institutional investors collectively sign a singleglobal request for disclosure of information on greenhouse gas emissions and climate change riskby the largest companies in the world. The first request was sent in 2002, resulting in thepublication of the CDP1 report in 2003. The CDP4 report was released 2006. The request forinformation to be compiled into CDP5 was sent to companies in February 2007.

CLOSED LOOP System in which all wastes are recycled or re-used so that no new materials are needed toprovide a new generation of products.

CO2e Carbon dioxide equivalent. There are a range of Greenhouse Gases that contribute to thegreenhouse effect and climate change. However, each contributes to different degrees (i.e. theyhave a different Global Warming Potential). For example one molecule of methane has the sameeffect as 21 molecules of carbon dioxide. For ease of calculation emissions of GHGs other thanCO2 are described in terms of the equivalent number of molecules of CO2 that they represent.

CR Corporate Responsibility. Also sometimes referred to as Business Responsibility. See CSR andTBL.

CRI Australian Corporate Responsibility Index. Reporting initiative overseen by the St James EthicsCentre which allows companies to voluntarily assess their CR performance. The CRI is based ona program developed by the UK organisation “Business in the Community.”

CSR Corporate Social Responsibility. In this Guide the term corporate responsibility (CR) has beenused to refer issues traditionally understood to be covered by the term corporate socialresponsibility. Typically CSR covers a range of corporate activities which extend beyondtraditional legal compliance requirements in the areas of social and labour policy,environmental protection, corporate governance and the like.

DOW JONESSUSTAINABILITYINDEX (DJSI)

Index designed to measure the corporate sustainability of companies. The leading 10% ofcompanies in terms of sustainability out of the biggest 2,500 companies on the Dow JonesGlobal Index, and the top 20% of the Dow Jones STOXX 600 are rated. I nvestment managers in14 countries hold licences to use the DJSI to assess and manage financial products.

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ECOLOGICALFOOTPRINT

A measure of a individual or organisation’s impact on the environment, an ecological footprint is arepresentation of the total quantity of resources that are used directly and indirectly as a resultof the organisation’s activities. The original means of representing an ecological footprint wasby quantifying the area of land required to support resource use.

EIA Ethical Investment Association Australasia.

EQUATOR PRINCIPLES A framework for banks to manage the environmental and social issues of projects for which theyare giving project financing. Signatories to the Principles agree not to loan money to a projectwith a total capital cost of US$10 million unless the sponsors of the project comply withrequirements to undertake environmental and social assessments and, in some cases, todevelop management plans for the environmental and social impacts of the project.

ESD 1. the precautionary principle – if there are threats of serious or irreversible environmentaldamage, lack of full scientific certainty should not be used as a reason for postponingmeasures to prevent environmental degradation;

2. inter-generational equity – the present generation should ensure that the health, diversityand productivity of the environment are maintained or enhanced for the benefit of futuregenerations;

3. conservation of biological diversity and ecological integrity;

4. improved valuation, pricing and incentive mechanisms – environmental factors should beincluded in the valuation of assets and services.

ESG Environmental, Social and Governance factors. Phrase used alternatively with CR in somearenas.

FOREIGN CORRUPTPRACTICES ACT

US law that outlaws the bribery of foreign public officials by US citizens or corporations. TheForeign Corrupt Practices Act was the first law of its kind, preceding the OECD Anti-BriberyConvention by 20 years. In 1998 the Act was amended to conform with the Anti-BriberyConvention.

FTSE4GOOD Index developed by FTSE Group to measure the performance of companies that meet globallyrecognised corporate responsibility standards: used to guide Socially Responsible Investment.

G250 Global Fortune Top 250 companies. Classification used in the KPMG International Survey ofCorporate Responsibility Reporting to mean the top 250 companies on the Fortune Global 500list. The Global 500 list is compiled by ranking corporations according to reported revenues.

GREENHOUSE GAS orGHG

GHG. Gas that contributes to the Greenhouse Effect by preventing the escape of radiant heatfrom the Earth’s atmosphere. Greenhouse Gases include carbon dioxide (CO2), methane (CH4),nitrous oxide (NO3), ozone, water vapour and chlorofluorocarbons (CFCs).

GREENHOUSECHALLENGE PLUS

Australian Government Initiative aimed at promoting industry-government partnerships. GreenhouseChallenge Plus combines the Greenhouse Challenge (which was established in 1995), GreenhouseFriendly™ and Generator Efficiency Standards. Companies that sign up enter into a contract with theGovernment outlining each parties’ obligations. The scheme is designed to encourage companies toreport and reduce their greenhouse gas emissions.

GRI Global Reporting Initiative. Organisation that produces non-financial reporting guidelines forcompanies.

IFC International Finance Corporation. The private sector arm of the World Bank which aims topromote sustainable private sector investment in developing countries.


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IGO Inter-Governmental Organisation (or multilateral agencies). Any body that is structured aroundcooperation or negotiation between national governments. Examples are the UN, the World Bankand the OECD.

ILO International Labor Organisation.

ISEA Institute for Social and Ethical Accountability.

ISO 26000 Guideline on Social Responsibility being developed by the International Standards Organisation,which is expected to be released in 2008.

JANTZI SOCIAL INDEX Socially screened, market capitalisation-weighted share index consisting of 60 Canadiancompanies that pass a set of broadly based environmental, social, and governance ratingcriteria. The aim of the index is to provide a benchmark against which investment managers cancompare the performance of their SRI funds. The Index was established in partnership with theDJSI.

JSE SRI INDEX Johannesburg Securities Exchange Sustainable Responsible Investment Index. An indexdesigned to measure and identify the level of compliance by companies with therecommendations in the King Report.

KING REPORT The King Committee on Corporate Governance (South Africa) produced a report in 1994 whichwas updated and re-released in 2002. The 2002 report is considered by many to set thebenchmark for best practice in corporate governance and has been used as a model for CRlegislation in other jurisdictions.

KYOTO PROTOCOL An international agreement that requires developed countries to reduce their GHG emissions byan average of 5.2% below 1990 levels by 2008-2012. It was adopted by all Parties to theUNFCCC in Kyoto, Japan, in December 1997. Despite the US and Australia not yet ratifying thetreaty, it entered into force in February 2005.

MNE Multinational Enterprise. A corporation that has production facilities in, or that delivers servicesin, at least two countries.

MULTILATERALAGENCIES

See IGO.

NATIONAL PACKAGINGCOVENANT or NPC

A voluntary agreement between all levels of government in Australia and companies ororganisations that sign it aimed at increasing the proportion of packaging that is recycled andreducing the volume of packaging waste ending up in landfill. Brand owners that elect not tosign the NPC may be subject to state legislation which implements the National EnvironmentProtection Measure on Used Packaging Materials (NEPM).

NGO Non-Governmental Organisation, e.g. Greenpeace.

OECD GUIDELINESFOR MNES

Voluntary, non-binding guidelines released by the Organisation for Economic Cooperation andDevelopment for MNEs.

PJC Parliamentary Joint Committee on Corporations and Financial Services.

REPUTEX SRI SRI Index that ranks a selected companies from the S&P/ASX 300 Index.

SAM Sustainability Asset Management Australia.

SME Small to Medium Sized Enterprises.

SRI Socially Responsible Investment (also known as Sustainable Responsible Investment).

SUSTAINABILITY The ability to meet the needs of the present generation without compromising the ability offuture generations to meet their own needs.

TBL Triple Bottom Line. Concept of reporting, decision-making or risk assessment taking into accountsocial, economic and environmental impacts rather than just the traditional economic bottomline.

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TRANSPARENCYINTERNATIONAL

International NGO that works to eliminate corporate corruption.

UN UNIVERSALDECLARATION ONHUMAN RIGHTS

Statement of human rights recognised by General Assembly of the United Nations in1948. Rights recognised in the Declaration include the right of equal treatment ofhuman beings, the right to a fair trial, the right of freedom of expression and the rightsto freedom from slavery and torture.

UNEP United Nations Environment Programme. Arm of the United Nations responsible for theUN-administered environmental initiatives.

UNFCCC United Nations Framework Convention on Climate Change.

UN GLOBAL COMPACT Initiative of the United Nations that facilitates a network of UN agencies, governments,business, labour, and non-government organisations to encourage companies to adopta set of principles of corporate citizenship.

UN PRI United Nations Principles for Responsible Investment. Voluntary, aspirational principlesto guide large institutional investors (in particular pension and superannuation funds)and asset managers towards corporate social and environmental responsibility.Established by UN Global Compact and the United Nations Environment ProgrammeFinance Initiative.

WORLD BANKSAFEGUARDS

Environmental and social safeguard policies designed to prevent and mitigate undueharm to people and their environment during the development process. The policiesare used as a guide by World Bank staff in the identification, preparation, andimplementation of programs and projects.


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1. Introduction – CR What doesit mean?

1.1 CSR or CRPractitioners of, and commentators on, CSR tend nowadays to talk of “corporateresponsibility” (or ”business responsibility”) rather than corporate social responsibility.We have adopted this shorter phrase in the knowledge that it too may soon becomeunfashionable, much like the phrase Triple Bottom Line.

1.2 Our definition of CR in this GuideFor the purposes of this Guide, we define CR as:

a voluntary and public act by a company intended to address the economic, socialand/or environmental impacts of its current or likely future business activities forthe benefit of its shareholders and those affected by its business operations.

Our definition necessarily excludes:

• mere compliance with applicable laws and in particular laws regulating safety,health, environment, labour standards or corrupt practices;

• actions taken solely for the benefit of persons unaffected by a company’s currentor likely future business operations; and

• corporate philanthropy or charitable giving.

Whilst it is argued that charitable donations (or sponsorships of sporting or culturalevents) are ultimately undertaken for the benefit of shareholders (by reason ofimproving the donor’s image and therefore attractiveness to investors or others),our view is that these types of activities tend to equate more easily with marketing.

Our preferred definition (which is a relatively narrow one) is focused on thoseactivities most likely to be accepted as part of corporate conduct which remainslargely unregulated1 and therefore still productive of competitive differentiation.

Although our definition excludes some activities which others label as “CR,” thisGuide is intended to survey the field, and so does consider activities which wewould not include in our definition.

1.3 Approaches to CRThere are a great many definitions of CR, some contradictory to others. A usefulsummary of the competing definitions of CR is provided in the report of theCorporations and Markets Advisory Committee (CAMAC),The Social Responsibilityof Corporations, released on 12 December 20062. As part of a comprehensivesurvey of the current issues surrounding CR around the world, and in Australia,the Committee identified five approaches to CR:

• The “business” approach: it is in the direct interests of companies to engagein CR practices, because it will assist in managing risk (both financial and non-financial) and create a suite of benefits for the company.

Summary

• There is a continuing debateover both the definition of, andthe terminology that should beused to describe, corporateresponsibility.

• We set out our definition ofcorporate responsibility for thepurposes of this Guide.

• The Australian Corporationsand Markets AdvisoryCommittee (CAMAC) hasidentified five approachesto corporate responsibility:

- business

- compliance

- philanthropic

- social primacy

- social obligation

• Australian regulators currentlyendorse the business approachto corporate responsibilitywhich involves little, if any,government intervention orany mandatory requirementsfor stand alone CR activity orreporting.

______________________

1 We recognise that there are an increasing number of legal or semi-legal requirements on certaintypes of companies to report on CR activities – e.g., listing requirements, accounting policies andsome corporations laws. The regulation of CR is examined in Chapter 4.

2 Available at http://www.camac.gov.au/camac/camac.nsf/byHeadline/PDFFinal+Reports+2006/$file/CSR_Report.pdf. For a summary and analysis of the CAMAC report with respect to CR seeBeatty, A. and Williams, E., “CSR and corporate governance: the reviews continue,” Keeping goodcompanies 59(2) (March 2007), 74-79.

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• The “compliance” approach: legal compliance, which may be simply meetinga company’s obligations as strictly interpreted, or going further and attemptingto comply with the “spirit” of the law as well.

• The “philanthropic” approach: companies make financial and non-financial donationsto the community in ways beyond their core business activities, because suchgiving will provide some benefit to the company (such as improved staff morale,recruitment advantages, improved reputation in the marketplace and so on) andto the communities in which they may operate (or hope to operate) or otherwiseaffect. Such philanthropy may include, for example, charitable donations, corporatesponsorship of the arts, donations to benevolent foundations, staff volunteeringtime to participate in community projects or workplace giving programs.

• The “social primacy” approach: corporate decision-making should incorporateethical standards that go beyond both the letter and the spirit of the law, evenwhere this does not result in any particular corporate benefit. For example,a company may choose not to do business with a company that has breachedhuman rights standards abroad, even where this would mean foregoing asignificant business opportunity.

• The “social obligation” approach: corporations have a responsibility to act forthe benefit of the community because they have access to significant and valuableresources that, on one hand, have the potential to make a significant contributionto public welfare and, on the other, if not used wisely may deprive others ofaccess to these resources where they may have some legal or moral claim orentitlement to them.

1.4 The “business” approachIn its 2006 report, CAMAC concluded:

• The interests of shareholders should not be subordinated to other “stakeholders”but, “awareness of relevant environmental and social considerations is part of anystrategy to promote the continuing well-being of the company and to maximiseshareholder value over the longer term.”3 In short, CAMAC endorsed the“business” approach as the model of CR that should guide corporations andregulators in Australia.

• The relevance of particular social and environmental matters will vary, dependingon the nature of a company’s business.4

• While directors may choose to do more to address certain social or environmentalissues they see as relevant to their business, companies do not “bear some formof obligation to tackle wider problems facing society, regardless of the relevanceof those problems to their own business.”

• The “philanthropic” approach to CR – where companies pursue CR and sustainabilityissues above and beyond their primary business activity – has no real place inCR practices when it is used to justify an unhealthy level of discretion affordedto directors in spending shareholders’ funds.

• CR is not an add-on: it is a central concern to how a company runs its affairs.However this does not mean that companies should disregard business objectivesin pursuit of solutions to environmental and social problems.

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______________________

3 CAMAC, The Social Responsibility of Corporations (December 2006), at 78.

4 Ibid.


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The Parliamentary Joint Committee (PJC) on Corporations and Financial Services5

and the ASX Corporate Governance Council6 also endorse the “business” approachto CR and recognise the need for corporate regulation to provide flexibility tobusinesses so as not to stifle business activity. In Australia, therefore, CR is understoodby regulators to be something that should be accommodated within business goalsand that it should not undermine the rights of shareholders or the importance ofshareholder interests in corporate decision making.

______________________

5 Parliamentary Joint Committee on Corporations and Financial Services, Corporate SocialResponsibility: Managing risk and creating value (June 2006).Available at http://www.aph.gov.au/senate/committee/corporations_ctte/corporate_responsibility/report/

6 ASX Corporate Governance Council, Review of the Principles of Good Corporate Governance and BestPractice Recommendations: Explanatory Paper and Consultation Paper (November 2006). Available athttp://www.asx.com.au/supervision/pdf/asxgc_explanatory_paper_consultation_paper_021106.pdf

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2. CR: Some Statistics

2.1 Global ContextMost CR activities tend to be conducted or at least subsequently reported on in public.CR (or non-financial) reporting is the clearest sign of CR. CR reporting is becomingincreasingly common among the world’s largest companies and, increasingly, amongstpublic sector businesses7. Statistics on the extent of reporting amongst the world’slargest companies have been compiled by a number of organisations and internationalmanagement firms.

The KPMG International Survey of Corporate Social Responsibility Reporting 2005(KPMG Survey8) made the following findings:

• 52% of the Global Fortune Top 250 companies (G250) issued stand-aloneCR publications in 2005. This was up from 45% of companies in 2002.

• 64% of the G250 provided sustainability reporting either in stand-aloneCR publications or within their annual financial reports in 2005.

• In 2005 almost 70% of the G250 reports covered social, environmental andeconomic criteria compared with 2002 where the content mainly coveredenvironmental, health and safety criteria.

The KPMG Survey also identified the participation in CR reporting from theG250 according to industry sectors.The strongest participants were:

• Chemicals and Synthetics: 100%

• Electronics and computers: 91%

• Utilities: 92%

• Oil & gas: 80%

• Automotive: 85%

In contrast, the weakest participants included:

• Trade and retail: 31%

• Communication: 47%

The strongest growth in reporting performance between 2003 and 2005 was in thefinance, securities and insurance sectors where reporting increased 138% to 57% ofcompanies providing stand-alone reports in 2005.

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Summary

• CR reporting activity is on therise globally and in Australia.

• There is some variation in theuptake of CR reporting acrossdifferent industries in Australia.

• The rise in Socially (or Sustainable)Responsible Investment (SRI) isevidence of a desire amongstinvestors for companies toconsider CR issues.

• Many shareholders are nownot just interested in makingmoney but want to know howthat money is made.

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7 In addition, many Governments (including the Australian Commonwealth, State and Territorygovernments) produce State of the Environment (SoE) reports as part of a UNEP program forglobal environmental assessment.These reports assess a range of environmental indicators andare compiled at global, regional, national and sub-national levels. For more information see:http://www.grida.no/soe/

8 The report was produced in conjunction with the University of Amsterdam. It is available athttp://www.kpmg.nl/Docs/Corporate_Site/Publicaties/International_Survey_Corporate_Responsibility_2005.pdf


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Source: KPMG 2005

2.2 Australian ContextThe KPMG Survey revealed that the CR reporting by Australia’s top companies hasgrown over the past decade. The number of sustainability reports produced by thetop 500 companies in Australia has increased as follows:

• 1995: 6 companies (1%)

• 2000: 65 companies (13%)

• 2005: 119 companies (24%)

These figures are similar to a survey conducted by the Centre for Australian EthicalResearch (CAER) of the Standard & Poor’s/Australian Stock Exchange (S&P/ASX)300 index9.

The uptake in voluntary reporting in Australia as at 2005 was relatively less than inother developed countries. Data from the KPMG Survey shows this:

• Japan: 81%

• UK: 71%

• Average (16 countries): 41%

• Australia: 23%

______________________

9 Centre for Australian Ethical Research (CAER), The State of Sustainability Reporting in Australia 2005(March 2006). Available at http://www.environment.gov.au/settlements/industry/corporate/reporting/pubs/survey2005.pdf

Corporate responsibility (CR) reporting by sector, Global 250 (2002, 2005)

57% 24%

91% 84%

85% 73%

80% 58%

31% 26%

92% 58%

100% 96%

47% 41%

100% 100%

0 10 20 30 40 50 60 70

Finance, securities & insurance 2005 2002

Electronics & computers 2005 2002

Automotive 2005 2002

Oil & gas 2005 2002

Trade & retail 2005 2002

Utilities 2005 2002

Pharmaceuticals 2005 2002

Communication & media 2005 2002

Chemicals & synthetics 2005 2002

Number

Number and percentage of companies with CR reports (separate and published as part of annual reports) Total number of companies in the sector

Sector

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According to the CAER report, sustainability reporting in Australia is dominated bya number of key sectors including: manufacturing, mining, wholesale trade, financeand utilities. In some sectors, including hospitality, health and community services,few if any companies have prepared sustainability reports.

The KPMG Survey shows that, overall, the uptake of CR reporting in Australia islagging significantly behind Japan, the UK, France, Germany and the USA.

2.3 Socially Responsible Investment (SRI)Another indicator of the interest in CR is the growth in the amount of funds managedas socially (or sustainable) responsible investments (SRI). SRI managed funds aregenerally screened to reflect environmental, social, labour relations or ethicalconsiderations use their investment in a company to try to influence its activities(i.e. a form of shareholder activism). The level of SRI reflects the interest of investorsin CR issues. Investor pressure through SRI funds has the potential to drive andpromote the uptake of CR issues in mainstream companies.

The Ethical Investment Association Australasia (EIA) conducts an annual SustainableResponsible Investment (SRI) Benchmarking survey, which details the extent andperformance of SRI in Australia and overseas. The surveys suggest there has beenan increase in Australian funds managed as sustainable investments. According tothe EIA, SRI managed funds grew in the 2005 financial year by around 56 % (from$7.7 billion to $12 billion).10 In the period 2000 – 2006, SRI managed funds grewby over 3,587 % owing to existing superannuation funds adopting SRI policies,and the strong performance of SRI managed funds. SRI funds now comprise 1.54%of the total managed investment funds in Australia. These numbers account onlyfor investments that are screened to remove companies on the basis of poor CRperformance and not those which engage in shareholder activism.

The PJC tentatively concluded that these results suggest a connection between goodcorporate behaviour and strong financial performance.11

Similar studies have also been undertaken in other countries which suggest thatthe market share of such funds is 3.5% in Canada and 2% in USA12. Differences inmethodology and the definition of SRI used means that direct comparisons betweenthese figures and those produced by the EIA in Australia are difficult to make.The figures do show that SRI managed funds have become a sizeable proportionof investment markets around the world.

There are a range of other forms of investments that screen in some way on criteriarelated to CR issues which fall outside the definition of SRI used by the EIA. As suchthe market share figures given by EIA do not reflect the entire range of investmentsthat employ CR issues as a criteria for investment selection.

Ethical or CR conscious investment is likely to play an increasing role in the conductof companies, especially public companies. The growth in CR conscious investmentsis evidence of not only greater shareholder activism, but also shareholder sophistication.Increasingly shareholders want to influence not just how much money they makebut how their money is made. They are no longer prepared to accept decisions

10

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10 Ethical Investment Association Australasia (EIA). Sustainable Responsible Investment in Australia – 2006,(September 2006), at 4. Available athttp://www.eia.org.au/html/s02_article/article_view.asp?id=285

11 Parliamentary Joint Committee on Corporations and Financial Services, Corporate SocialResponsibility: Managing risk and creating value (June 2006), at 18.

12 Ethical Investment Association Australasia (EIA), Sustainable Responsible Investment in Australia – 2006,(September 2006), at 13.


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being justified for reasons of shareholder value alone, but are also concerned aboutachieving social and environmental benefits, or at least limiting adverse impacts.Such active interest in CR outcomes is being demonstrated not only by “mum anddad” investors, but also, and more importantly, by large institutional investors whichare interested in CR issues from the perspective of corporate risk management.Institutional investors are less likely to invest in companies that are at risk of beinginvolved in large-scale litigation, being subject to onerous regulatory change or indanger of harmful damage to reputation. These risk issues are of particular concernto long-term institutional investors such as superannuation funds.

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3. Voluntary CR Initiatives

IntroductionThe spectrum of CR obligations and initiatives spans a wide range – from purelyvoluntary commitments by individual companies, to organised voluntary initiativesand codes of practice from industry groups, NGOs and others, to so-called “hard”regulation of the substantive environmental, social and economic activities thatcomprise it. This continuum is evolving as areas formerly within the sphere ofvoluntary activity become regulated or new guidelines and business principles aredeveloped to codify and standardise individual voluntary activities.

Many companies undertake voluntary activities, such as making charitable donations,establishing better than required environmental standards or creating superiorconditions for employees in the workplace. These initiatives may be undertakenon an ad hoc basis, or form part of a structured community partnerships program.

3.1 Voluntary ReportingMany shareholders no longer make their investment decisions based solely onthe financial success of a corporation. As a corporation’s social and environmentperformance is also evaluated, there is a growing demand for corporations to discloseinformation regarding the social and environmental impact of its business decisions.13

Accordingly, there has been a growing trend for corporations to voluntarily disclosetheir policies and practices that relate to the non-financial areas of their business.

Corporations that effectively embrace the concept of transparency and demonstratea commitment to being socially and environmental accountable are better able toconnect with that growing group of individual and institutional investors that seethese qualities as virtuous and as protection against business risk.

(a) Global Reporting Initiative (GRI)

There are numerous international initiatives to promote CR conduct and reporting.Chief amongst these has been the Global Reporting Initiative (GRI) which hasachieved a growing reputation as the premier framework for corporate sustainabilityor triple bottom line (environment, social, and economic) reporting.

The GRI is a global non-governmental organisation and collaborating centre of theUN Environment Program, which develops sustainability reporting standards foruse by corporations. The GRI Sustainability Reporting Guidelines (the GRI Guidelines)14

are an international set of guidelines which are disseminated to assist companies onsustainability reporting. They are voluntary guidelines and have been developed bya network of experts from accountancy, business, civil society, investment, labour,and other areas.

The GRI Guidelines are now used by nearly 1,000 major corporations and otherenterprises in over 60 countries. As a result, the GRI is used in the preparationof 40 percent of sustainability reports worldwide. In its report, Corporate SocialResponsibility: Managing risk and creating value, the PJC concluded that the level ofCR reporting in Australia has been growing strongly over the past decade.15 Therehas been an increase in the adoption of the GRI Guidelines in the preparation of

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Summary

• Companies implement a rangeof voluntary actions as part oftheir own CR programsincluding:

– reporting against their ownCR criteria or one of thenumerous reportingstandards for CR;

– compliance with non-binding standards, normsor guidelines; and

– participating in market orindustry initiatives.

• Sources of guidance forvoluntary initiatives includemultilateral agencies (or IGOs),NGOs, governments, markets,and industry cooperationbodies.

• There is considerable overlapamongst the types of guidancegiven from these sources.

• Some companies areexperiencing significantpressure to adopt voluntarymeasures, particularly frominstitutional investors.

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13 CSR Wire, “What is Corporate Social Responsibility,” The Corporate Social Responsibility Newswire,www.CSRwire.com (Last Accessed: 5 September 2006).

14 Available at http://www.globalreporting.org/NR/rdonlyres/A1FB5501-B0DE-4B69-A900-27DD8A4C2839/0/G3_GuidelinesENG.pdf

15 See note 5 above.


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sustainability reports by Australian companies.The CAER Report, The State ofSustainability Reporting in Australia 2005,16 noted that in 2005 20% of Australianowned companies used the GRI Guidelines in composing their sustainability reports.Internationally, however, 40% of companies mentioned the use of GRI Guidelinesin their sustainability reports and 30% of these provided additional details on howthe GRI was used.17

Although it felt it premature to recommend the adoption the GRI Framework asthe standard for voluntary reporting of CR issues in Australia, the PJC did see potentialfor it to become such a standard in the future.18 As such it recommended that theAustralian Government monitor its uptake in Australia and internationally. It alsorecommended that the Australian Government provide guidance to businesses, includingsmall businesses, on how to apply the Global Reporting Initiative Framework. Some inthe CR community considered this aspect of the PJC report overly cautious.19

The GRI’s new set of standards – “G3” – were released in October 2006.20

The guidelines are guides, not prescriptions. Only quite large businesses arelikely to generate impacts in all performance areas. Companies reportingagainst the G3 principles are free to filter out indicators which are irrelevant,meaningless or impractical for their situations.21

In Australia, companies like BHP Billiton,Westpac, Lend Lease and IAG haveused the guidelines in preparing their sustainability reports.

(b) Carbon Disclosure Project2222

The Carbon Disclosure Project (CDP) is a program which allows global institutionalinvestors to request information from large corporations on their greenhouse gasemissions and climate change risk. Institutional investors collectively sign a singleglobal request for disclosure of this information. The first request was sent in 2002and was signed by institutional investors representing assets under management ofUS$4.5 trillion. The letter of request issued by the CDP in February 200723 was sentto 2400 of the world’s largest quoted companies by market capitalisation, including150 of the largest companies in Australia and New Zealand, 250 of the largestelectricity companies globally and the FT500, USA S&P 500 and FTSE 350.

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16 See note 9 above.

17 KPMG, International Survey of Corporate Social Responsibility Reporting 2005. See note 8 above.

18 Parliamentary Joint Committee on Corporations and Financial Services, Corporate SocialResponsibility: Managing risk and creating value (June 2006), at xvi.

19 This attitude is informed by the depth of penetration of the GRI guidelines.This has led someinstitutional investors to request companies to report against the GRI for ease of comparison.In 2006, CERES, an alliance of US pension funds representing US$300 billion assets undermanagement, sent a letter to all companies in the US S&P500, requesting them to startreporting against the GRI:

“The GRI framework is the most widely used, internationally accepted set of metrics for reporting a company’sperformance on issues pertaining to sustainable prosperity. Since the information contained in a GRI reportis critical to our ability to evaluate a company’s risk profile and long-term viability, we are asking allcompanies in the S&P 500 to join the hundreds of firms who are currently using the GRI guidelines toprovide investors with complete, transparent and balanced reporting.”

20 For an overview of the G3 Guidelines and an analysis of how they differ from G2, see Beatty, A.,“G3, the new edition of the Global Reporting Initiative’s sustainability reporting framework,”Keeping good companies, 58 (10) (November 2006), 619-621.The G3 Guidelines are available athttp://www.globalreporting.org/ReportingFramework/G3Online/

21 An example of this process of filtering out sections of the GRI Guidelines is given in Dowse, J.,“Sustainability measures that count,” Keeping good companies, 58(8) (September 2006), 466-471.

22 See http://www.cdproject.net/

23 Carbon Disclosure Project, “Press Release:Worlds Largest Investor Coalition representing $41 trillionSeeks Further Disclosure on Climate Change and Shareholder Value From World’s Largest Corporations”(1 February 2007). Available at: http://www.cdproject.net/pressreleases.asp

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284 institutional investors, representing US$41 trillion under management, signedthe letter of request. The funds represent one third of total global invested assets.In 2006, 72%, or 360 of the FT500 companies, and 58% of all US companies whichwere sent the request for information responded.

The CDP demonstrates the pressure that institutional investors can place on companiesto voluntarily disclose non-financial information.

Of the 100 Australian companies that were asked to provide information for the CDP4report, 57% responded.24 Companies that responded included AGL, MacquarieInfrastructure Group, BHP Billiton, Boral, Mirvac, Rio Tinto, AMP and ANZ.

(c) Triple Bottom Line Reporting Guidelines

The Department of the Environment and Heritage has developed a guide entitledTriple Bottom Line Reporting in Australia:A Guide to Reporting Against Environmental Indicators25

which complements the GRI Guidelines. It provides companies with performanceindicators, particularly in the area of environment, against which companies canprepare public environment reports.

3.2 Voluntary Compliance

(a) Soft legislative obligations

Under recently enacted energy efficiency legislation,26 corporations are requiredto report on potential measures for reducing energy use. However, the reductionof the levels of energy being consumed, as well as the implementation of policiesto ensure that reduction, is voluntary.

(b) IGO and NGO initiated norms and guidelines

OECD Guidelines for Multinational Enterprises

A component of the Declaration on International Investment and MultinationalEnterprises,27 the OECD Guidelines are voluntary, non-binding standards coveringa range of issues including human rights, information disclosure, employment andindustrial relations, environment and consumer interests. The OECD Guidelinesapply to the operations of Multinational Enterprises (MNEs) and have been supportedby Australia as a signatory to them.

UN Global Compact2288

Launched in 2000, the Global Compact is an initiative of the United Nationsthat facilitates a network of UN agencies, governments, business, labour, and non-government organisations to encourage companies to adopt ten principlesof corporate citizenship. The principles are outlined below.

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24 Investor Group on Climate Change Australia/New Zealand (IGCC) and KPMG, Carbon DisclosureProject Report 2006:Australia & New Zealand (CDP4 Report) (October 2006), 31. Available athttp://www.igcc.org.au/

25 Environment Australia, Triple Bottom Line Reporting in Australia - A Guide to Reporting Against EnvironmentalIndicators, (June 2003) Available at http://www.environment.gov.au/settlements/industry/finance/publications/indicators/index.html

26 E.g. Energy Efficiency Opportunities Act 2006 (Cth). Similar requirements exist under the EnergySavings Action Plan scheme conducted under the Energy and Utilities Administration Act 1987 (NSW).

27 http://www.oecd.org/document/24/0,2340,en_2649_34887_1875736_1_1_1_1,00.html

28 http://www.unglobalcompact.org/


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Currently 3000 businesses and organisations are signatories to the Global Compactalthough only 20 are Australian organisations.

The Global Compact is not a regulatory instrument. Rather, it “relies on publicaccountability, transparency and the enlightened self-interest of companies, labourand civil society to initiate and share substantive action in pursuing the principlesupon which the Global Compact is based.”29

In October 2006, the Global Compact and the GRI announced an alliance throughwhich they encourage corporations to use the two initiatives in combination.30 It ishoped the alliance will encourage corporations to use the reporting and transparencyframework of the GRI in order to achieve the broad principles of corporate citizenshipin the Compact. As part of the alliance, a guide has been released outlining howparticipants can use the G3 Guidelines to fulfil their commitment to report on theirprogress in implementing the ten principles of the Compact.31

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29 UN Global Compact, “What is the Global Compact?”http://www.unglobalcompact.org/AboutTheGC/index.html (Last Updated: 21 December 2006;Last Accessed: 2 March 2007).

30 UN Global Compact and Global Reporting Initiative, An Alliance to Mainstream Responsible CorporateCitizenship: A Call to Action From the UN Global Compact and the Global Reporting Initiative (October 2006).Available at http://www.unglobalcompact.org/docs/news_events/9.1_news_archives/2006_10_06/Alliance_FINAL.pdf

31 UN Global Compact and Global Reporting Initiative, Making the Connection: Using the GRI’s G3 ReportingGuidelines for the UN Global Compact’s Communication on Progress (October 2006).Available athttp://www.unglobalcompact.org/docs/communication_on_progress/4.3/Making_the_connection.pdf

Human Rights

Principle 1: Businesses should support and respect the protectionof internationally proclaimed human rights.

Principle 2: Make sure that they are not complicit in humanrights abuses.

Labour Standards

Principle 3: Businesses should uphold the freedom of associationand the effective recognition of the right to collectivebargaining.

Principle 4: The elimination of all forms of forced and compulsorylabour.

Principle 5: The effective abolition of child labour.

Principle 6: The elimination of discrimination in respect ofemployment and occupation.

Environment

Principle 7: Businesses should support a precautionary approachto environmental challenges.

Principle 8: Undertake initiatives to promote greaterenvironmental responsibility.

Principle 9: Encourage the development and diffusionof environmentally friendly technologies.

Anti-Corruption

Principle 10: Businesses should work against all formsof corruption, including extortion and bribery.

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UN Principles for Responsible Investment

The UN Global Compact together with the United Nations Environment ProgrammeFinance Initiative have also developed the UN Principles for Responsible Investment(PRI).32 Launched in April 2006, the PRI are voluntary, aspirational principles toguide large institutional investors (in particular pension and superannuation funds)and asset managers towards corporate social and environmental responsibility.There are now over 120 signatories, together representing in excess of US $6 trillionin assets.

AccountAbility 1000

AccountAbility 1000 (AA1000)33 is an international standard for independentlyverifying the social and ethical accounting, auditing and reporting of companies.It operates in tandem with the GRI Guidelines and provides internal and externalassurance that the data and content of the CR reporting is validated by an independentparty. The AA1000 have been devised by UK-based international membershiporganisation – the Institute for Social and Ethical Accountability (ISEA).

AA1000 has been used in Australia by companies like National Australia Bank,Westpac,Transurban, BHP Billiton, Landcom,Toyota Australia, IBM Australia and Wesfarmers.

The International Standards Organisation (ISO) – ISO 26000

The ISO is in the process of developing the new ISO 26000, a guideline for SocialResponsibility, which is expected to be released in 2008. The ISO is responsiblefor developing an extensive range of standards related to aspects of CR such asenvironmental management.

Australian Standard on Corporate Social Responsibility (AS 8003-2003)

Standards Australia has released a specific voluntary standard (AS 8003-2003)34 oncorporate responsibility which provides guidance to organisations on how to establish,implement and maintain a CR program. It is aimed at all companies, both for profitand non-profit.

3.3 Market and Industry Based Initiatives

(a) Industry-initiated guidelines

Various industry groups have prepared guidelines or codes which provide a frameworkfor how a corporation, and its directors, should operate. Adherence to these codesis voluntary and does not replace the legislative requirements imposed on corporationsor their directors.

Equator Principles

An initiative of the finance and investment industry to address environmental andsocial risks associated with project financing, the Equator Principles were launchedin 2003. A revised set of Principles came into force in 2006, which expanded thenumber of projects covered and introduced more stringent assessment proceduresfor these projects.35

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32 UNEP Finance Initiative and UN Global Compact Principles for Responsible Investment (April 2006).Available at http://www.unpri.org/files/pri.pdf

33 Available at http://www.accountability21.net/aa1000/default.asp

34 Available at www.standards.com.au

35 The Equator Principles are available at http://www.equator-principles.com/principles.shtml


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By committing to the Equator Principles, a financial institution agrees to provideproject finance only to those borrowers that can demonstrate a willingness to complywith assessment processes aimed at ensuring they are operated in a socially responsibleand environmentally sound manner. The institution must apply the Principles to allloans for projects with a capital cost of US$10 million dollars or more. Projects arecategorised as A, B or C (high, medium and low environmental or social risk) basedon the nature of the project and the environmental and social regulations of thejurisdiction in which the project is being developed. Category A and B projects arerequired to undertake an Environmental Assessment, which addresses environmentaland social issues, according to set criteria. After this continuing projects may needto produce an Environmental Management Program, which if not adhered to canlead to the cancelling of the loan to the project.

45 financial institutions have now adopted the Equator Principles including twoAustralian banks: ANZ and Westpac. Together these institutions representapproximately 80-85% of the global project finance market. 36

Australian Minerals Industry Framework for Sustainable Development 3377

The AMIFSD is a voluntary code to encourage Australian companies in the mineralsindustry to improve their environmental performance.

(b) Market reporting requirements

ASX Council Recommendations

The ASX Corporate Governance Council released its Principles of Good CorporateGovernance and Best Practice Recommendations (ASX Council Recommendations)38 in2003. The Council is a collaborative, industry based body consisting of 21 membersrepresenting regulators, institutional investors, shareholder groups, directors andcompany secretaries, financial officers, auditors, accountants and lawyers. In the2002 CLERP 9 Discussion Paper, Corporate Disclosure – Strengthening the financialreporting framework on proposed amendments to the Corporations Act,39 the FederalGovernment identified the Council as the appropriate body for developingguidelines on corporate governance issues.

The Council Recommendations apply to listed companies and trusts. They arenot mandatory requirements to which companies must adhere, but under the ASXListing Rules listed entities must report against the Recommendations annually underan “if not, why not” reporting requirement. The ASX Council Recommendations areconsidered in more detail in the chapter on current regulatory requirements.

(c) Market indices

Sustainability indices have been developed to rank companies according to theiroverall financial and non-financial performance. Examples include the US’s DowJones Sustainability Index, the UK’s FTSE4Good, the Canadian Jantzi Social Indexand the South African Johannesburg Securities Exchange SRI Index.

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36 Scholtens, B., “Finance as a driver of corporate responsibility,” Journal of Business Ethics, 68(1) (2006),19-33;Watchman, P., “Beyond the Equator,” Time Magazine (30 May 2005), 16-17.

37 See http://www.minerals.org.au/enduringvalue

38 Available at http://www.asx.com.au/supervision/governance/principles_good_corporate_governance.htm

39 Commonwealth of Australia, CLERP 9 Discussion Paper: Corporate Disclosure - Strengthening thefinancial reporting framework on proposed amendments to the Corporations Act (2002).Available athttp://www.treasury.gov.au/contentitem.asp?NavId=&ContentID=403

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The Australian Corporate Responsibility Index (CRI)

Launched in 2004, the CRI is a reporting initiative overseen by the St James EthicsCentre which allows companies to voluntarily assess their own CR performance.40

The index was originally developed by the UK organisation “Business in the Community”in consultation with UK businesses. The CRI has been created with business inputand is intended to be used by companies as a management tool. It evaluates fourmain areas:

• Business strategy

• Implementation of the business strategy

• Management of CR within the business

• Performance on various social and environmental indicators.

Each year Australia’s BRW top 250 companies and the Business Council of Australia’smembers are invited to participate.41

RepuTex SRI Index

The RepuTex SRI Index,42 established in August 2001, serves a similar purpose.At present the RepuTex SRI Index ranks 44 companies in the S&P/ASX 300 Indexrepresenting 52% of the market capitalisation of the S&P/ASX 300 Index.

Australian SAM Sustainability Index

The Sustainability Asset Management Australia (SAM) launched the Australian SAMSustainability Index (AuSSI)43 in February 2005. The AuSSI invites Australia’s largestlisted companies to participate in the assessment process after which the companiesare ranked. The leading 10% of companies in each industry are then aggregated toform the AuSSI.

(d) Joint government-industry initiatives in Australia

Prime Minister’s Community Business Partnership

The Community Business Partnership44 was set up in 1999 and is chaired by thePrime Minister. It acts as a ‘think tank’ bringing together business and communityleadership in order to form partnerships advancing corporate social responsibilityand advise the government on CR issues. It also awards good corporate playersthrough the Prime Minister’s Community Business Partnership Awards. This initiativeis partly modelled on the UK’s “Business in the Community” programme.

Greenhouse Challenge Plus

The Greenhouse Challenge Plus combines the Greenhouse Challenge (which wasestablished in1995), Greenhouse Friendly™ and Generator Efficiency Standards.45

It is a government sponsored arrangement under which volunteer46 industry participantsreport on and seek to reduce their greenhouse emissions. As part of the program,

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40 See http://www.corporate-responsibility.com.au/

41 The 2005 results can be accessed at http://www.corporate-responsibility.com.au/results/2005_results.asp. The 2006 results for the Corporate ResponsibilityIndex are due for release on 14 May 2007.

42 See https://secure1.impactdata.com.au/reputex/

43 See http://www.aussi.net.au/

44 See http://www.partnerships.gov.au/

45 See http://www.greenhouse.gov.au/challenge/

46 Note that while participation in the scheme is voluntary, this has not prevented the Governmentfrom introducing a significant coercive measure into the Fuel Tax Act 2006 (Cth), whereby acompany cannot claim more than $3 million dollars in fuel tax credits in a single financial yearunless they are participating in the Greenhouse Challenge Plus Programme.


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companies enter into a Cooperative Agreement with the Government, which detailsthe obligations of each party. Companies that sign up are contractually bound to meettheir promises under the Cooperative Agreement while they continue to participatein the program. However, it is possible to stop participating in the program at anytime as long as the Cooperative Agreement does not put conditions on termination.

Australian Research Institute in Education for Sustainability

Started in 2003, the Australian Research Institute in Education for Sustainability(ARIES) is based at Macquarie University.47 It develops educational materials onCR for the institutional investor sector and the not-for-profit sector. The IndustrySustainability Project, for example, involved ten corporate and governmentorganisations implementing change for sustainability. The lessons from the processwere compiled in Shifting towards sustainability: Six insights into successful organisationalchange for sustainability, a publication designed to inspire readers to take action forthemselves.48

The majority of the funding for ARIES is provided by the Federal Department ofEnvironment and Water Resources.

(e) International CR initiatives

There have been numerous regulatory and policy approaches which various countrieshave pursued to encourage CR behaviour especially within Europe and, to a lesserextent, North America.

United Kingdom

There has been a strong push from business and industry to encourage corporateresponsibility in the UK. Although there has been a strong example set by the miningand finance sector, there have been a number of industry-led projects such as “Businessin the Community”. This organisation aims to build a network within business todevelop and embed sustainable business practice.

The London Stock Exchange has established the Corporate Responsibility Exchange,an online tool to disseminate polices and practices in the area of corporate responsibility.

Canada

The Canadian government has used a web-based tool, Strategis, to provide corporateresponsibility-related information to companies and consumers. Other tools includingthe Environmental Management Toolkit and Sustainability Reporting Toolkit areaimed at training small and medium-sized businesses to improve their CR practices.Canada has also adopted regulatory, economic and voluntary initiatives to advancecorporate responsibility. This includes a requirement for all federally regulatedfinancial institutions with capital assets in excess of $1 billion to issue an annualPublic Accountability Statement describing their social contributions.

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47 See http://www.aries.mq.edu.au/

48 Hunting, S.A. and Tilbury D., Shifting towards sustainability: Six insights into successful organisationalchange for sustainability (2006), Australian Research Institute in Education for Sustainability (ARIES)for the Australian Government Department of the Environment and Heritage, Sydney: ARIES.Available at http://www.aries.mq.edu.au/pdf/InsightsBooket.pdf

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South Africa

All companies with securities listed on the Johannesburg Securities Exchange (JSE)must report annually against the criteria in the GRI Sustainability Reporting Guidelines.This requirement was introduced in 2003, following a recommendation of the KingReport of 2002.49 The report nominated the GRI Guidelines specifically as thereference point for companies to report against.

The JSE developed its SRI Index as a mechanism for measuring and identifying thelevel of compliance by companies with the recommendations in the King Report.

The 2002 report of the King Committee, which updated an earlier 1994 version,is a significant document in the CR landscape. It has received significant internationalattention and is considered by many to set the benchmark for best practice in corporategovernance. The Chair of the Committee, Mervyn King, was appointed to the positionof Chair of the GRI in October 2006.

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49 Copies of the King Reports I and II can be purchased from the South African Institute of Directors athttp://www.iodsa.co.za/king.asp


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4. CR: Legal ObligationsIn addition to the vast (and still expanding) range of voluntary initiatives, there areof course many legal and regulatory measures governing CR activities of companiesin, for example, the areas of pollution, labour and safety standards and corporategovernance generally. These regulations are now extending CR reporting andactivities per se.

4.1 Traditional obligations of a CR natureMost directors would be aware that they are already subject to onerous legal duties,some of which impose personal liability for breaches by their company of environmental,OHS and employment regulations and, less regularly but more spectacularly, directorsare also exposed to personal liability where it is alleged they breached their generalduties as directors.50

There has been a trend towards making directors and managers personally liablefor the regulatory breaches of their corporations. One controversial area is thatof corporate manslaughter provisions. In NSW, an employer who is judgedcriminally liable for the death of a worker is liable to imprisonment and finesof up to $1,650,000.51

A Bill52 which sought to establish criminal liability for senior officers of businessesthat negligently cause workplace deaths and injuries was introduced into the Victorianparliament in 2001, but was subsequently defeated.

4.2 Corporate Governance

(a) Corporations Act 2001

CR Reporting

All public companies, large proprietary companies, disclosing entities and registeredschemes (as defined in the Corporations Act 2001) are required to lodge an annualreport with ASIC.53 Whilst the financial reporting requirements of a corporation are

Summary

• A variety of longstanding legalobligations regulate sometraditional areas of CR concern– labour, safety and theenvironment.

• CR is now influencing all Boarddecision-making due to anincreasing focus on the placeof CR in corporate governance.

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50 For example, in NSW, if a corporation contravenes any provision of the Occupational Healthand Safety Act 2000 (NSW), each director of the corporation, and each person concerned inthe management of the corporation will be personally liable for the offence. The penalty foran offence under the Act by an individual is $55,000 for a first time offender and $87,500 ortwo years imprisonment (or both) for a repeat offender. A similar director liability provision isfound in the Protection of Environment Operations Act 1997 (NSW) in relation to environmentaloffences. Under s 596AC of the Corporations Act 2001 (Cth), a person who has entered anagreement or transaction with intentions that include preventing or significantly reducing theamount of entitlements that the employees of a company can recover, is personally liable tocompensate affected employees for their loss. A recent, widely publicised example of the potentialpersonal liability for directors is the prosecution of ten James Hardie executives and directors fortheir conduct in relation to asbestos-related liabilities: Higgins, E. and Kerr J., “Lawsuit guns forHardie bosses,” The Australian, (16 February 2007), 1; Priest, M. and Skulley, M., “ASIC seeksbans for Hardie asbestos directors,” Australian Financial Review, (16 February 2007), 1.

51 Under s 32A of the Occupational Health and Safety Act 2000 (NSW):

(2) A person:

(a) whose conduct causes the death of another person at any place of work, and

(b) who owes a duty under Part 2 with respect to the health or safety of that person whenengaging in that conduct, and

(c) who is reckless as to the danger of death or serious injury to any person to whom thatduty is owed that arises from that conduct,

is guilty of an offence.

52 Crimes (Workplace Deaths & Serious Injuries) Bill

53 Small proprietary companies are not required to prepare these reports unless directed to do so byASIC or shareholders with at least 5% of the votes in the company.

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prescribed by the Corporations Act, there are no such mandatory requirements fora corporation to disclose detailed social and environmental information that relatesto the corporations’ operations.

s 299A of the Corporations Act requires listed companies to include in their directors’report any information that shareholders would reasonably require to make aninformed assessment of the operations of the company, its financial position and thecompany’s business strategies and prospects for future years. CAMAC argues thatthe broad language of the provision was designed to give directors flexibility to reportrelevant non-financial information. CAMAC pointed out that the ExplanatoryMemorandum to the Bill introducing this section encourages directors to meet bestpractice on reporting relevant non financial information. The provision does not,however, impose a mandatory reporting obligation.

In addition to s 299A, s 299(1)(f) of the Corporations Act, requires companies toreport on compliance with certain environmental regulations. In practice, manyreports under s 299(1)(f) tend to be very succinct and, for the interested stakeholder,somewhat uninformative.

CAMAC’s 2006 report considered whether any reforms should be made to theCorporations Act to encourage Australian businesses to implement CR. The onlylegal reform that CAMAC recommended was that the s 299A reporting requirementbe extended to all listed entities and not just listed public companies. This wouldcapture listed management investment funds and listed trusts, which now make upover 10% of listed entities.

CAMAC also felt that there was no need to impose separate or additional requirementson companies to report CR information under the Corporations Act because s299Aalready provided a sufficiently wide platform for the reporting of these issues.

The “hands-off ” (or “light touch”) approach taken by CAMAC is justified on the basisthat without any obvious legislative intervention there has been, and continues tobe, strong uptake in CR reporting by companies. While CAMAC has recommendedagainst legislative intervention now, the Committee has not ruled out the possibleintroduction of a CR reporting requirement in the future. Additionally, in light ofthe rapid evolution of CR reporting conventions, the Committee recommended thatno standardised framework should be introduced yet. The Committee felt that inthe fast-moving environment of CR, the more agile ASX regulation, industry guidelinesand other voluntary schemes such as the Global Reporting Initiative (GRI) are betterplaced to advance CR reporting.

The advice given by the Committee on CR reporting was guided by two principles.First, CAMAC believed that the Corporations Act is “an imperfect mechanism” formeeting the information needs of interest groups other than investors. Second, theCommittee felt that where the disclosure of information relating to a specific socialor environmental outcome is desired, the appropriate mechanism for obtainingthis information is through a targeted legislative provision that creates a reportingrequirement for all relevant entities, whether they are corporations or not.

Directors’ Duties

CAMAC also considered whether the duties of directors should be amended to requiredirectors to consider stakeholders other than shareholders in corporate decision-making. The issue is whether there is a breach of directors’ duties if a director failsto take into account the interests of a group to whom he or she can have regard.Under the Corporations Act and the common law, directors are required to act in

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the best interests of the company. The Committee felt that the current powers andduties of directors are already sufficiently flexible to allow for the “business” approachto CR to be adopted. They concluded that, “while required to act in the interestsof shareholders generally, directors are not precluded from having regard to effects on othergroups or social or environmental considerations that may bear on their ongoing interests”54

(emphasis added).

The Committee specifically rejected introducing provisions that have been implementedin other jurisdictions such as the corporate constituency statutes55 of some US states, orthe elaborated shareholder benefit approach of s 172 of the Companies Act 2006 (UK)56.

(b) ASX Corporate Governance Principles

The ASX Corporate Governance Council publishes a set of corporate governance bestpractice principles and recommendations. The Recommendations are not mandatoryprescriptions. However ASX Listing Rule 4.10.357 imposes an “if not, why not”reporting obligation on listed entities. This means that in their annual reports listedentities must identify which Recommendations they have not followed and explainwhy.58 The requirement to report against the Recommendations is separate from therequirement for continuous disclosure under ASX Listing Rule 3.1.

______________________

54 CAMAC, The Social Responsibility of Corporations (December 2006), at 81. A similar conclusion wasreached in a report prepared by Freshfields Bruckhaus Deringer for the UNEP Finance Initiative,A legal framework for the integration of environmental, social and governance issues into institutional investment,(October 2005) (Available at http://www.unepfi.org/fileadmin/documents/freshfields_legal_resp_20051123.pdf).The report focused on the scope corporations and fund managers have toconsider environmental, social and governance (ESG) factors when making investment decisions.In its analysis of Australian law, the report stated that while Australian fund managers have takenthe view that ESG investment is inconsistent with the fulfilment of their fiduciary obligations,including the duty to maximise return for the beneficiaries, recent commentary “suggests that wherean investment decision has been made on the basis of a ‘modern portfolio’ approach, whichjustifies the inclusion of a variety of risky and non-risky investment options provided the overallinvestment yields a positive financial result, a fiduciary will not be in breach of its obligations andmay safely pursue an ESG strategy” (at 44-45).

55 The majority of states in the US have introduced some form of statute that expressly permits(but does not require) directors to take into account broader community considerations. Formore information on these statutes see Corporations and Markets Advisory Committee (CAMAC),The Social Responsibility of Corporations (December 2006), 99-102.

56 Section 172 (Duty to promote the success of the company) of the Companies Act 2006 (UK):

(1) A director of a company must act in the way he considers, in good faith, would be most likelyto promote the success of the company for the benefit of its members as a whole, and in doingso have regard (amongst other matters) to -

(a) the likely consequences of any decision in the long term,

(b) the interests of the company’s employees,

(c) the need to foster the company’s business relationships with suppliers, customers and others,

(d) the impact of the company’s operations on the community and the environment,

(e) the desirability of the company maintaining a reputation for high standards of businessconduct, and

(f) the need to act fairly as between members of the company.

(2) Where or to the extent that the purposes of the company consist of or include purposes otherthan the benefit of its members, subsection (1) has effect as if the reference to promoting thesuccess of the company for the benefit of its members were to achieving those purposes.

(3) The duty imposed by this section has effect subject to any enactment or rule of law requiringdirectors, in certain circumstances, to consider or act in the interests of creditors of the company.

57 The ASX Listing Rules are available at http://www.asx.com.au/supervision/rules_guidance/listing_rules1.htm

58 The rationale behind the “if not, why not” approach is that there is no single model of good corporategovernance. Strictly speaking, companies are only required to report against the Recommendations,and not the broader Principles or the Commentary and Guidance included under the Recommendations.Although all that is required of a company if they have adhered to the Recommendations is astatement to that effect, companies are encouraged to give more detailed information explaininghow they have followed the Recommendations.This more detailed information may be expectedby shareholders.

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The Recommendations include:

• Publicly listed companies and trusts establish codes of conduct to promote ethicaldecision-making and to guide compliance with legal and other obligations tolegitimate stakeholders. The legitimate stakeholders mentioned in the Commentaryand Guidance are shareholders, employees, clients, customers, consumers andthe community as a whole. It is also mentioned that “organisations can createvalue by better managing natural, human, social and other forms of capital.”

• The Board or appropriate Board committee should establish policies on riskmanagement and oversight. As part of this the company should establish andregularly review a risk profile, which describes the material business risks of thecompany. The risk profile is for the internal use of the company and is not requiredto be disclosed. The Commentary and Guidance also outlines the characteristicswhich a company’s internal audit function should have and states that it shouldreport to management.

• The chief executive officer (or equivalent) and the chief financial officer(or equivalent) should provide a signed statement to the Board certifying that:

– the statement required under Recommendation 4.1 (which is now capturedunder s 295A of the Corporations Act) as to the integrity of financial statements“is founded on a sound system of risk management and internal complianceand control”; and

– the company’s risk management and internal compliance and control systemis operating efficiently and effectively in all material respects.

In November 2006 the Council released an Explanatory Paper detailing the amendmentsit is proposing for the Principles and Recommendations following a review of the firsttwo years of their operation.59 One aim of the review was to assess whether changesare required to reflect developments in non-financial risk reporting. As well asthe Explanatory Paper, the Council released a Consultation Paper on the role theCouncil should be playing in the reporting of CR and sustainability issues bycorporations.60

Submissions on the draft changes and the Consultation Paper closed on 9 February2007. The final version of the revised ASX Council Recommendations are expectedto be released to the market by the end of June 2007 and to come into force on1 January 2008.61 The Council intends the outcomes of the Consultation Paperprocess to be folded into the amended Principles and Recommendations. At thetime of the publication of this Guide a debate about whether the proposed changesshould come into force is on foot between directors of major corporations, some ofwhom do not wish to have any further obligations imposed to report non-financialinformation, and institutional investors, some of which want greater disclosure ofnon-financial information.62

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______________________59 The Explanatory and Consultation Papers are available at http://www.asx.com.au/supervision/

pdf/asxgc_explanatory_paper_consultation_paper_021106.pdf

60 For a summary and analysis of the Consultation Paper and the proposed changes to theRecommendations see Beatty, A. and Williams, E., “CSR and corporate governance: the reviewscontinue,” Keeping good companies, 59(2) (March 2007), 74-79.

61 ASX, Media Release: Update on Revised Corporate Governance Priciples Implementation(2 April 2007).

62 Washington, S., “We need to keep our secrets,” The Sydney Morning Herald (19 February 2007),19; Gettler, L., “Business Council fights ‘impractical’ reporting push,”The Age (22 February 2007),2; Robinson, M., “Governance in danger of going a step too far,” Australian Financial Review(23 February 2007), 75.


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The Consultation Paper considers whether the ASX Corporate Governance Councilshould play a role in CR reporting. The Council recognised that there is considerablescope for voluntary reporting of non-financial issues (such as operational matters,human capital, environmental matters, compliance, reputation and brand) in theoriginal and the draft Recommendations. However some submissions to the Reviewhave expressed strong opposition to the Council adopting CR as a focus, separateand additional to its focus on corporate governance. If the Council feels that itshould take a greater interest in CR its coverage of CR issues will be limited tothe extent that they impact on business outcomes for listed entities.

The Council rejected a recommendation of the PJC, which proposed that additionalguidance be given to Principle 7 so that companies should “inform investors of thematerial non-financial aspects” of their risk profile “by disclosing their top fivesustainability risks (unless they demonstrate having fewer)”. The Council rejectedthis proposal on the basis that:

• risk factors are constantly changing, and as such a static ranking is not anappropriate means of assessing those risk factors;

• identifying priority risks may expose directors or others to liability if a risk noton the list results in significant damage; and

• requiring companies to rank risks may force them to reveal commerciallysensitive information.

The Consultation Paper also considers whether a new “if not, why not” reportingobligation should be introduced into Principle 7, which would recommend companiesdisclose their other material business risks (which would be determined by the Board)and the steps they are taking to manage those risks. It remains to be seen whetherthis requirement will be introduced in 2008.

Even if a new reporting requirement does not eventuate, the additional guidancegiven in the draft, reformulated Principle 7 makes it clear that a company’s riskmanagement system should look at non-financial risks, which is likely to includemany CR issues.

Baker & McKenzie

5. CR: Key Issues

5.1 Social

(a) Community partnerships and philanthropy

Community partnerships are a means to develop social engagement programs thatcombine philanthropic giving with corporate volunteering, in-kind donations andpro bono services. Through community partnerships, companies may use theirextensive resources and customer base to assist or promote a particular organisationor to collect funds on behalf of a particular cause. In general, community partnersare selected because they are working towards a specific social objective in whichthe company has a particular interest, and the nature of the company’s support isoften tailored to each partner’s needs.

Developing partnerships with key organisations is an effective way for companies acrossall sectors to engage with local and regional communities and reduce the adverseimpact of their operations on the community in which they operate. Communityengagement can also assist companies to better understand the diverse cultures andtraditions that make up their customer, supplier and stakeholder base.

Many companies build long-term community partnerships with established charitableand community organisations, such as poverty-relief organisations (e.g. the SalvationArmy, the Smith Family or Mission Australia), medical research and treatmentorganisations (such as the Garvan Institute or the Heart Foundation), or indigenoussupport organisations (such as Indigenous Enterprise Partnerships).

Companies often support organisations working in a field aligned with their businessoperations: for example, many pharmaceutical companies sponsor medical researchfacilities, alcoholic beverage producers support organisations working to promoteresponsible drinking and car manufacturers support safe driving programs foryoung people.

Community partnerships often provide the vehicle for the tailored CR socialprograms set out below, such as employee volunteering, capacity building andindigenous engagement.

(b) Employee volunteering

Employee volunteering often forms an integral part of community partnershipprograms. Many companies encourage their employees to donate their time bygranting community leave days and offering flexible working conditions. Someestablish volunteer leader or mentor positions within the organisation to assistemployees to locate appropriate volunteer positions, build relationships withcommunity partners and introduce new corporate volunteering opportunitiesto the company.

Philanthropic giving and employee involvement programs also intersect wherecompanies provide incentives for their employees to make contributions to aparticular cause. For example, companies may implement a matching schemewhere employee contributions to charitable causes and organisations are matcheddollar-for-dollar, or institute a casual dress day where participating employeesdonate to a particular charity or cause.

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Summary

• There are four main areas ofCR activity:

– Social/Community

– Labour

– Environment

– Transparency

• Within these broad areas thereare a wide range of availableactions and initiatives enablingdifferentiation betweencompetitors.


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Often, companies implement strategies to reward the contribution employeesinvolved in these types of programs by giving awards or other means for internalrecognition or by making contribution to social programs a key performanceindicator relevant to promotion. This is viewed by many as a means to maximise theadvantages for community partners and to consolidate the benefits accruing to thecompany – for example, through increased employee loyalty, decreased staff turnover,better recruitment and enhanced skill development.

(c) Capacity building

Many companies are now working with community partners, government bodiesand other relevant stakeholders to provide workshops and other capacity-buildingservices to communities. Often, these capacity-building activities are related tothe company’s business operations and build on the skills of employees to providetraining services to the community.

Some banks, ANZ for example, have developed comprehensive financial literacytraining programs aimed at particular groups, including low-income earners, theunemployed and indigenous Australians. These programs work with the target groupsto improve their financial knowledge and money management skills and to developa long-term savings plan. The programs are often rolled out through partnershipswith community organisations that are already working with the target groups.

Programs in other sectors may also focus on the company’s business line – forexample, engineering firms may promote science in schools, health industryparticipants provide exercise and nutrition information, and so on.

Some companies have also created capacity-building programs to help communitygroups maximise their efficiency (through accountancy or marketing training) orhelp individuals overcome particular disadvantages (such as job seeking workshopsfor the long-term unemployed). These programs are generally targeted towardsa particular theme but are not necessarily related to the company’s business.

Example:Toyota Community Spirit program – Employee Volunteer Initiative6633

The Employee Volunteer Initiative is a program being piloted at one of Toyota’smanufacturing sites in Hobson’s Bay. The program matches Toyota volunteerswith local community groups and charitable organisations and has two “modules”:

• Volunteering in Action: individual employee volunteers are matched withcommunity groups identified by the local council, including communityhouses and environmental groups.

• Skill Sharing Workshops: individual employees with specific skills (such asrecruitment or public relations) are matched with local groups that requirethe identified skills. The employees conduct capacity-building workshopsfor group members to assist in the development of those skills.

______________________63 See http://www.toyota.com.au/corporate/articles/0,2862,subId%253D1655%

2526sectionId%253D230,00.html

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(d) Indigenous relations

Many companies’ indigenous relations strategy focuses on capacity building inAboriginal communities and providing opportunities to overcome disadvantage.For example, many banks and financial institutions have established financial literacyand self-sufficiency programs specifically targeted at indigenous Australians. Othercompanies reserve employment opportunities within their own company for indigenouscandidates, or develop schemes to assist Aboriginal people to find work, start businesses,undertake education and training and so on.

Another important element of indigenous CR activities is the creation of strategiesto minimise impacts on Aboriginal cultural heritage. These strategies have beendeveloped particularly by companies operating in extractive industries, in responseto concerns these companies have the potential to adversely impact Aboriginal sitesand artefacts through their remote and rural operations.

To reduce these likely impacts, some companies undertake early consultations withindigenous communities to assess the likely impact of their operations on indigenousculture and places, including ceremonial and sacred sites and archaeological resources.Companies may then work with indigenous communities and leaders to develop anenvironmentally and culturally sound plan of action to minimise the overall impactof operations.

Example:Westpac and Indigenous Enterprise Partnerships6655

The Indigenous Enterprise Partnerships are directed towards assisting indigenousAustralians to develop financial and money management skills. Key partnersin the program include Westpac, Cisco Systems, ANZ and Boston ConsultingGroup. Westpac’s involvement in the program focuses on three initiatives:

• the Family Income Management Scheme: a secondment program to remoteand regional areas, where secondees conduct workshops and other traininginitiatives to assist families in understanding the principles of financialmanagement. Westpac works to support the ongoing local project staff.

• Business Hubs: a secondment program to Cape York, where secondeesorganise training to promote entrepreneurial activity within indigenouscommunities.

• Computer Culture Project: a project designed to reform indigenous educationby training families to be involved in children’s education and buildingexpectations around teaching and learning.

Example:Unilever’s World of Work6644

World of Work is a program designed to help disadvantaged and long-termunemployed people into full-time work. The participant is matched with afull-time mentor and trainer for 13 weeks, during which time Unilever providesthem with paid work and training in a range of roles including forklift driving,warehouse management and human resources, as well as interview skills andpractice. The program is conducted in partnership with Job Network providerssuch as Mission Australia.

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______________________

64 See http://www.unilever.com.au/ourvalues/environmentandsociety/theunileverfoundation/worldofwork/

65 See http://www.iep.net.au/index.htm


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(e) Supply chain management

Many companies are utilising their considerable market power as buyers of goodsand services to reward and support suppliers who practice CR and thereby expandthe reach of their own CR programs. This strategy is often implemented througha supply chain assessment process whereby existing and potential suppliers are requiredto report on their environmental, social and employment-related CR activities andare subject to a sustainability evaluation. New and contract-renewing suppliers arerequired to meet certain standards before becoming engaged or re-engaged, andcompanies work with existing suppliers not meeting established sustainability criteriato assist them in improving their performance.

The GRI has noted that initiatives aimed at improving the transparency of supplychains are one of the main reasons that small to medium sized enterprises becomeinvolved in CR reporting.66 However, in many cases, supply chain managementprograms have required a certain amount of information dissemination andcapacity-building to be undertaken by the company to ensure smaller suppliersare not disadvantaged by the implementation of the new policy.

(f) Equity programs

Some companies have taken steps to ensure equity of access to their products andservices. These programs are particularly important where a company providesessential services, such as telecommunications, energy or banking. Such programsmay include, for example, creating physical access points for people with a disability,ensuring staff who are assigned to particular branches speak the foreign languagescommonly spoken in the suburb, or ensuring that call centres have “teletext”functionality for the hearing impaired.

Example:Wal Mart suppliers and sustainability reports

An often cited example of supply chain sustainability is the sustainability strategyof Wal-Mart, the world’s largest retail company. In 2006 Wal-Mart decided toprepare a sustainability report which would provide additional information ontop of the disclosures they already make on environmental impacts and labourpractices. Some of the major suppliers to Wal-Mart (e.g. Sara Lee) responded tothis initiative by developing their own sustainability report.67 With a network of60,000 suppliers, the potential impact of Wal-Mart working on the sustainabilityof its supply chain is massive. Recognising this,Wal-Mart has developed a numberof programs in which it works with its suppliers on sustainability goals. Manyof these now come under Wal-Mart’s Sustainability 360 program, launched inFebruary 2007. One such initiative is “to work with suppliers to reduce packagingby five percent by 2013 – an effort equal to removing 213,000 trucks from theroad, and saving approximately 324,000 tons of coal and 67 million gallons ofdiesel fuel per year.”68 The company also has a goal to develop partnerships thathelp suppliers run more sustainable businesses and factories.

______________________66 Global Reporting Initiative, “Supply Chain project set to demonstrate power of collaboration”

(February 2007). Available at http://www.globalreporting.org/NewsEventsPress/LatestNews/2007/NewsFeb07SupplyChain.htm

67 Boessenkool, A., “More Cos Face Requests For Sustainability Reports This Yr,” Dow Jones CorporateFilings Alert, (25 January 2007).

68 Gunther, M., “The Green Machine,” Fortune (7 August 2006). For more information onWal-Mart’s sustainability programs see: http://www.walmartstores.com/GlobalWMStoresWeb/navigate.do?catg=691

Baker & McKenzie

(g) Stakeholder engagement

Stakeholder engagement programs are designed to ensure that communities areinformed about operations and can engage in consultation with the company wheregrievances arise. These programs are often conducted through a designated communityrelations liaison officer, and may involve individual community consultation orengagement plans that are adapted to the specific needs of each business site.Stakeholder engagement programs can minimise risk for companies by allowingthem to anticipate and deal pre-emptively with community concerns. They can alsosave money for companies by giving NGOs (and others interested in a company’sactivities) a focal point for information collection.

5.2 Labour

(a) Diversity and promotion of women

Diversity in the workplace is a growing priority for companies across all sectors.Many companies have targeted programs to increase the proportion of the workforcethat is female, disabled, from a non-Australian ethnic or cultural background or overthe age of 45. For companies in the service sectors, it is generally recognised thatstaff diversity (particularly in relation to staff dealing directly with customers) allowsthe company to provide better customer service and generally build goodwill.

Some companies have implemented diversity policies by setting targets for recruitmentand promotion of particular groups. In practice, companies report that flexiblework options including part-time work, job-share arrangements and flexible leavearrangements are useful tools to meet these targets, particularly in relation toemployees with primary carer duties for children or disabled or elderly relatives.

For women, mentoring, coaching and leadership training programs are reported toassist in remedying the gender inequality in senior management positions. Diversityprograms are often supplemented by staff training in discrimination and harassmentto ensure that policies are implemented and supported throughout the company.

Example:Telstra’s Access for Everyone program6699

The Access for Everyone program is designed to ensure accessibility totelecommunications services for low-income earners, people with a disabilityand regional and remote communities. Specific initiatives include:

• a free message service called MessageBox which allows homeless and transientpeople to use and receive messages;

• flexible payment options for people on low or fixed incomes (BudgetPay); and

• Bill Assistance certificates, paid for by Telstra and issued by the Smith Family,the Salvation Army, St Vincent de Paul and Anglicare, which can be used tohelp pay Telstra bills.

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______________________

69 See http://www.telstra.com.au/accessforeveryone/index.htm?tR=3hm


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(b) Health and safety

Much of the field of health and safety is already regulated by Federal and Stateoccupational health and safety (OHS) legislation. However, many companies seekto go beyond what is required by regulations to provide a safer workplace for theiremployees. Health and safety initiatives are a particular focus of the extractive,manufacturing and transport sectors where employees operate heavy machinery,drive vehicles, handle dangerous substances or carry out other hazardous work.

One of the key rationales for ensuring maximum possible levels of safety is that highlevels of injury and illness cost companies a significant amount through lost workdays and insurance premiums. Ensuring employee health and safety through theimplementation of OHS programs is an important way to mitigate this risk. In allsectors, programs to promote employee health such as gym memberships, healthinsurance, access to physical and mental health services and so on is reported to notonly boost staff morale but also improve general levels of health amongst employees.

Many companies that require employees to drive commercial vehicles as part oftheir responsibilities have implemented driver training programs, including defensivedriver training, driver observation and feedback and anti-rollover and jack-knifetraining. Similar intensive programs are often implemented for employees handlingheavy or dangerous machinery or dangerous substances.

Where employees are required to handle dangerous substances, some companiesimplement extensive training programs to minimise the risk of injury and have regular,free health checks conducted at the workplace by external medical practitioners.Some Australian companies that operate in developing country jurisdictions havetargeted programs to reduce the risk of infection from communicable diseases suchas HIV/AIDS, tuberculosis and malaria.

Example:ANZ’s Social Diversity Program7700

The ANZ Diversity Council is charged with implementing ANZ’s social diversityprogram, which involves a range of initiatives designed to promote the recruitment,retention and promotion of women, mature age workers, people with a disabilityand indigenous Australians. Some of the measures adopted include:

• Senior female leaders conduct a “Springboard to Success” mentoring programfor women within ANZ, with a view to increasing the representation of womenin management;

• Over 55 year-old employees that have satisfactory performance record for atleast five years are given the right to move into a part-time role if they choose;

• In partnership with the Aboriginal Employment Scheme, young indigenouspeople are given the opportunity to participate in traineeships with ANZ aspart of their final year studies.

______________________

70 See http://www.anz.com/aus/about/People/diversity.asp. Also seehttp://www.anz.com/aus/corporateresponsibility2006/inspiring.asp?pageno=3

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(c) Freedom of association and collective bargaining

Recognising the right of employees to join trade unions and participate in collectivebargaining has been identified as a core indicator of CR by the GRI.72 This is anexample of how CR includes the recognition and promotion of human rights issues,as the GRI Sustainability Reporting Guidelines states that this indicator reflects therecognition in the UN Universal Declaration of Human Rights.

The protocol for reporting against this indicator states that companies should identifyoperations in their business in which employee rights to freedom of association andcollective bargaining may be at risk and to report on measures taken by the company tosupport these rights. This reporting standard is unlikely to give rise to any difficultiesin operations located in jurisdictions that have legislative protection for these rights.This reporting standard envisages that companies can play a role in maintaining theright of freedom of association even in countries where it is not protected or isbeing directly threatened.

5.3 Environment

(a) Reporting

Sustainability reporting is often cited as an important mechanism for:

• assisting shareholders and investors to determine how well a company is dealingwith material non-financial risks;

• informing other stakeholders about companies’ environmental impacts and thestrategies being employed to address those impacts; and

• enabling companies to better manage their non-financial risks, identify newmarkets or business opportunities, and improve their reputation.

The GRI guidelines provide an example of a framework for sustainability reporting.They require companies to assess and report on the environmental, social and economicimpacts of their activities by reference to various indicators.

Example:BHP Billiton – Fit for work/Fit for Life7711

BHP Billiton has developed a comprehensive health program for employeesintended to address a number of key areas: drug and alcohol use, fatiguemanagement, medical assessment, travel health, ergonomic analysis, occupationalrehabilitation, health promotion and employee assistance. Some practicalinitiatives to implement this program include:

• The operation of overnight radio (BMA Miner’s Overnite) in BHP BillitonMitsubishi Alliance mines in Central Queensland to manage the fatigueof workers by broadcasting during night shifts from midnight to 6am.The broadcast includes mine safety messages and allows workers torequest songs to ensure alertness.

• A Waist Reduction Program designed to decrease the body fat levels of shiftworkers through a multi-stage fitness and information program at WorsleyAlumina in southwest Western Australia.

______________________71 See http://sustainability.bhpbilliton.com/2005/repository/health/caseStudies/caseStudies3.asp

72 Human Rights Performance Indicator 5 (HR5) of the GRI Sustainability Reporting Guidelines.


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Environmental performance is a major component of sustainability reporting whichhas had a strong uptake by many major companies. “Environmental impact” refersto an organisation’s effect on living and non-living natural systems, including ecosystems,land, air and water. The GRI lists sixteen core environmental indicators, including:

• environmental impacts of products and services;

• energy, material and water use;

• greenhouse gas and other emissions;

• effluence and waste generation;

• impacts on biodiversity;

• use of hazardous materials;

• recycling, pollution, waste reduction and other environmental programs;

• environmental expenditures; and

• fines and penalties for non-compliance.

(b) Management and certification

An Environment Management System is a widely-used tool for managing the impactsof an organisation’s activities on the environment and controlling environmental risks.It monitors environmental performance in a similar fashion to the way in which afinancial management system monitors expenditure and income, and enables regularchecks of a company’s financial performance.

Many large businesses have obtained certification for their Environment ManagementSystems under the international standard, ISO 14001. This standard specifiesrequirements for:

• establishing an environmental policy;

• determining environmental impacts of products/activities/services;

• planning environmental objectives and measurable targets;

• implementing programs to meet objectives and targets; and

• engaging in management review.

Certification is often considered valuable due to the potential trade and marketadvantages of an internationally recognised and certified Environment ManagementSystem. Deployment of, and compliance with, an Environmental ManagementSystem may also assist companies accused of environmental crimes where, in someAustralian jurisdictions, the only realistic defence is evidence of “due diligence”.73

______________________

73 Generally, there are three types of defences to an environmental crime that a person may haveavailable to them in Australia:

1. the person had no knowledge, actual, imputed or constructive, of the offence or any elementof the offence, or

2. the person was not in a position to influence the conduct of the body corporate in relationto that offence, or

3. the person, if in such a position, used all due diligence to prevent the commission of theoffence by the body corporate.

For practical purposes directors of companies will rarely, if ever, be able to rely upon the “noinfluence” defence as it is the job of directors to guide and manage the affairs of the corporationand they are, almost by definition, required to “influence” the conduct of the corporation.

Accordingly, for directors and senior managers the only realistic defence to a serious chargeof environmental harm brought against them will be the “due diligence” defence or the noknowledge defence (if it is available). NSW has recently abolished the no knowledge defencein relation to certain crimes under the Protection of the Environment Operations Act 1997.

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(c) Minimising greenhouse gas emissions

With the increasing recognition of the serious ecological and economic threatsposed by escalating greenhouse gas emissions, a significant number of companieshave identified climate change as a strategic business risk and/or opportunity andare taking voluntary action to reduce their contribution to the problem. Leadingcompanies have taken the step to integrate climate change strategies and practicesinto their daily operations, rather than running stand-alone programs.

A common strategy is the setting of a target for reductions in greenhouse gas emissions,which can then be met using the most cost-effective mechanisms. For many companies,a significant reduction in emissions is achieved by implementing energy efficienttechnologies. Workplaces are often fitted with less energy-intensive lighting andair-conditioning, and car fleets are replaced with fuel efficient or alternative fuelvehicles. Some companies have taken a further step and have committed to purchasingsignificant amounts – up to 100% in some cases – of their energy from renewablesources. A number of companies (including HSBC, Swiss Re, BSkyB and IAG) andhave now committed to going “carbon neutral”: through reductions in the carbonemissions generated by their activities and the purchase of carbon offsets the companyaims to have no net CO2e emissions.74

Several companies involved in minerals processing and industrial manufacturingare leading the way in terms of “clean” technology development. For example, keyplayers in the coal industry are promoting research into zero-emission coal technologies.

(d) Clean investment decisions

Sustainable investment entails the consideration of both the profit potential of aninvestment and its impact on society and the environment. Investors might alsoseek out profitable “industries of the future” which will positively impact on theenvironment, in areas such as renewable energy, water management and recycling.75

Leading companies that recognise stakeholder concern about the indirectenvironmental impacts financial institutions may have through project lending,have implemented measures such as:

• applying international benchmarks such as the International Finance Corporationand World Bank Safeguard policies when providing project finance in developingcountries;

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______________________

74 Some of these companies have now achieved carbon neutral status.To read about these companies’commitments to go carbon neutral, go to the following websites:

– IAG: http://www.iag.com.au/pub/iag/sustainability/carbon_neutral.shtml

– HSBC (which achieved carbon neutral status in October 2005):http://www.hsbc.com/hsbc/csr/environment/hsbc-and-climate-change/carbon-neutrality

– Swiss Re: http://www.swissre.com/INTERNET/pwswpspr.nsf/fmBookMarkFrameSet?ReadForm&BM=../vwAllbyIDKeyLu/sstk-5srlha?OpenDocument

– BSkyB (which achieved carbon neutral status in May 2006) can be read about in theNews Corporation Annual Report 2006, (30 June 2006), at 24, available at:http://www.newscorp.com/Report2006/AR2006.pdf

– Barclays Bank (which achieved carbon neutral status for its UK operations in 2006):http://www.barclays.com/corporateresponsibility/managingourenvironmentalimpactaa.htm

75 For example, in 2005, GE launched a new program “ecomagination” aimed at developing innovativeproducts which are both financially successful and generate broader environmental, social andcustomer benefits.Within this program GE has focused on developing a range of products withgreater energy efficiency. For more information on ecomagination see http://www.ge.com/en/citizenship/customers/markets/ecomagination.htm. A similar initiative, “Big Green” Innovationshas been announced by IBM.


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• establishing internal standards for environmental impact assessment andindependent due diligence for all financed projects (e.g. the Equator Principles);

• requiring project finance clients to take environmental compliance risks intoaccount; and

• avoiding lending to certain types of industry, such as those who engage in testingon animals.

(e) A life-cycle approach to products

To ensure environmental sustainability, many companies are taking a “cradle-to-grave”approach to their operations. This approach makes use of life-cycle assessmentprinciples, which stipulate that every input and output associated with themanufacturing of goods or the provision of services should be sustainable.Examples of relevant measures include:

• specifying sustainability criteria for supplier selection;

• ensuring that the extraction of raw materials used in manufacturing is performedusing “best” environmental practice;

• incorporating energy consumed by products when used by their purchasers intoenvironmental performance analyses; and

• recycling end-of-use products and industrial wastes rather than disposing of them.

(f) Minimising ecological “footprints”

Some companies are developing closed loop manufacturing systems to minimiseboth water demand and wastage. Where this is not possible, some companies arerecycling water either on-site or off-site (for example, for irrigation purposes),typically after high-grade treatment using reverse membrane osmosis. Waterconservation is also achieved by companies making use of cooling tower alternativesfor air-conditioning systems, such as chilled beams or co-generation plants.

Example:Caterpillar’s Remanufacturing Services

Caterpillar has developed a business unit which remanufactures old machineryso that it can continue to be used by a customer well beyond its original life-span.The process differs to repairing a machine or recycling the raw materials thatmake up the machine, since remanufacturing uses cleaning techniques and rigoroustesting to ensure that the components re-used (and the resulting remanufacturedmachine) are as good as new, giving them a much longer life-span than repairs.

Remanufacturing generally requires fewer resource and energy inputs thanproducing a new fleet of machinery, making it both cheaper and moreenvironmentally friendly.

“Overwhelmingly fewer resources are consumed to remanufacture a componentthan to build a completely new one. In fact, remanufacturing is moreenvironmentally friendly than recycling in that remanufacturing dramaticallylowers the volume flow of resources. Fewer parts are thrown away, reducinglandfill pollution. And what was once viewed as waste is now being reused.”76

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76 See the section on remanufacturing services on the Caterpillar website: http://www.cat.com/

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The conservation of other resources is being achieved by, for example:

• using recycled paper and also recycling paper/plastic used in business operations;77

• using materials made from renewable resources; and

• using biodegradable packaging for products.

Biodiversity preservation and ecosystem protection are other key considerationsfor some companies, many of which are undertaking initiatives above and beyondtheir duties under environmental regulations; for example, by transforming areas ofoperating sites into wildlife sanctuaries. Such activities are of particular significancewhen dealing with offshore operations in countries where environmental regulationis under development or poorly enforced.

(g) Educate and encourage

Many companies are educating their employees and the community about sustainablepractices. Some examples include:

• organising free environmental seminars by expert panels with the aim of raisingenvironmental awareness in the community;

• encouraging employees to use public transport, and providing the means (forexample, a no-interest loan for annual public transport tickets) for them to do so;

• donating to environmental charities and funding employees to undertakeconservation research work;78 and

• funding academic research by universities and other institutions into environmentallysound technology.

5.4 Transparency

(a) Transparency International

Transparency International (TI)79 is an international NGO that works to eliminatecorruption. It has a network of 90 local chapters and chapters in formation throughoutthe world. The group produces studies and reports into corruption and lobbies forchanges in laws and practices to prevent its recurrence. Each year TI releases a BribePayers Index and Corruption Perceptions Index which rate countries on their potential

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77 In Australia recycling of consumer packaging is being encouraged through the National PackagingCovenant (NPC).The NPC is a voluntary agreement between all levels of government in Australiaand the companies or organisations that sign it. Brand owners that choose not to sign the Covenant,and which have an annual turnover of more than $5 million in Australia are subject to the NationalEnvironment Protection Measure on Used Packaging Materials (NEPM). The NEPM and thecorresponding State legislation impose a range of obligations on non-signatories, including monitoringthe types of packaging used and whether it is recycled and introducing efforts to increase recyclingof packaging waste. Financial penalties are imposed for non-compliance. The NPC/NEPMco-regulatory scheme has been in place since 1999. In July 2005, the national recycling target underthe scheme was revised: by the end of 2010, 65% of packing is to be recycled and the amount ofpackaging waste disposed to landfill will remain at 2005 levels. For more information on the NPCsee http://www.environment.gov.au/settlements/waste/covenant/index.html

78 In 2002 HSBC established a partnership with the conservation group Earthwatch as part of thecompany’s “Investing in Nature” program. It involves sending HSBC employees on Earthwatchconservation research projects around the world. On their return, these employees brief theircolleagues about their field project and commit to carrying out a local environmental project withsupport from Earthwatch and a grant from HSBC. By the end of 2004, 1400 employees had beensent on such expeditions. HSBC has also provided scholarships for seventeen young Singaporeansto join a Earthwatch international research projects since 2004. For more information seehttp://www.earthwatch.org/

79 http://www.transparency.org/


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to be involved in bribery and corruption. Individuals and organisations who workagainst corruption are recognised through the Transparency International IntegrityAwards program.

TI has been active in supporting the OECD Anti-Bribery Convention80 and campaigningfor the Convention to be actively implemented.

Companies can support Transparency International in its work by donating moneythrough the Global Corporations for Transparency International (GCTI) program.81

Current members of the GCTI program include Anglo American, Ernst & Young,Exxon, General Electric, SAP and UBS.Typically these companies contribute

50,000 per year to TI.

(b) Implementation of the OECD Anti-Bribery Conventionin Australia

In order to meet its obligation under the OECD Anti-Bribery Convention, Australiapassed the Criminal Code Amendment (Bribery of Foreign Public Officials) Act1999 (Cth). It is an offence under the Act for an Australian citizen, resident orcorporation cause or offer the provision of a benefit to another person for thepurpose of influencing a foreign public official in order to obtain or retain a businessadvantage.82 A person found guilty of this offence is liable to penalty of ten yearsimprisonment and/or a fine of up to $66,000 for an individual, or a fine of up toA$330,000 for a company. In addition to the penalties under the statute, a personor company accused or convicted of the offence will also face reputational damageand negative publicity in Australia and internationally.

Offences of attempt, complicity, incitement and conspiracy also apply under theCriminal Code, which increases the likelihood that executives and companies whoare not the principal offender, but are somehow involved in the act of bribery canface criminal prosecution.

The significant financial and reputational risk posed by these Anti-Bribery provisionsmeans that companies that operate overseas may wish to consider integrating briberyand corruption risks into their risk management and CR systems.

(c) US Foreign Corrupt Practices Act

In 1977 the Foreign Corrupt Practices Act (FCPA) was introduced with the intentionprohibiting bribery of foreign officials by American corporations. In 1998 amendmentswere made to the Act to make it conform with the OECD Anti-Bribery Convention.

Companies accused of acting in contravention of the FCPA can face criminal or civilproceedings. In a speech to the American Bar Association (ABA) in 2006, AssistantAttorney General Alice Fisher stated that enforcement of the FCPA was a high priorityof the US Department of Justice.

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80 In 1996 the UN adopted by General Resolution the UN Declaration against Corruption and Briberyin International Commercial Transactions. The Declaration aims to co-ordinate the introduction ofnational legislation outlawing bribery of foreign officials and to deny tax deductibility for bribes.In 1997 the Declaration was endorsed by the OECD member states through the Convention onCombating Bribery of Foreign Public Officials in International Business Transactions which entered intoforce on 15 February 1999. 36 countries (30 OECD members and 6 non-members) have nowsigned the Convention, which commits signatories to introduce legislation criminalising briberyof foreign officials.

81 http://www.transparency.org/support_us/support/gcti

82 s 70.2 of the Criminal Code Amendment (Bribery of Foreign Public Officials) Act 1999 (Cth).For a more detailed analysis of the elements of the offence and the defences that are open to thoseaccused of the offence, see Wilder, M. and Ahrens, M., “Australia’s Implementation of the OECDConvention on Combating Bribery of Foreign Public Officials in International Business Transactions,” MelbourneJournal of International Law, 2(2) (2001), 568-586.

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A number of actions under the FCPA resulted in companies agreeing to settlementsunder which they paid significant sums of money.83 In her ABA speech, AssistantAttorney General Fisher stated, “if a foreign company trades on US exchangesand benefits from US capital markets, it is subject to [US] laws. The Department[of Justice] will not hesitate to enforce the FCPA against foreign-owned companiesjust as it does against American companies.”84

This position was demonstrated in the action and settlement against Statoil,a Norwegian company alleged to have bribed an Iranian official to obtain oiland gas contracts in Iran. Statoil was subject to the FCPA because it hasAmerican Depository Shares that trade on the New York Stock Exchange.85

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83 For an analysis of four such settlements see Goldstein, H.W., “Recent Foreign Corrupt PracticesAct Developments,” New York Law Journal, 237(3) (4 January 2007), 5-6.

84 Quoted in Goldstein, above, at 6.

85 See Goldstein, H.W., “Recent Foreign Corrupt Practices Act Developments,” New York Law Journal,237(3) (4 January 2007), 5.


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6. CR: Is it for you?The debate about the benefits of CR is likely to remain inconclusive for so long asthere is argument about the relative values to be ascribed to individual CR activities.Added to this, in some economies (particularly the USA) there is a well-developed(and publicised) scepticism about CR with some commentators labelling it as littlemore than “greenwashing” or (sophisticated) marketing.87

6.1 The bottom line On one view of it, there is no direct correlation between socially responsiblebusiness practices and positive financial performance and companies will benefitmost by pursuing maximum profits and returns to shareholders regardless ofsocietal consequences. Principle 10 of the Australian Stock Exchange CorporateGovernance Council’s Principles of Good Corporate Governance and Best PracticeRecommendations notes, however, that:

There is growing acceptance of the view that organisations can create value by bettermanaging natural, human, social and other forms of capital.

The potential for companies which focus on CR activities which align with theirbusiness interests to create shared value was analysed in a recent Harvard BusinessReview article.88 A recent Australian study found that companies that act in a sociallyresponsible outperform those that fail to do so by more than three per cent a year.89

According to CSR Europe:90

“more than 100 empirical studies published between 1972 and 2000 have examinedthe relationship between companies’ socially responsible conduct and financialperformance. In these studies, the majority of results (68 percent) point toa positive relationship between corporate social performance and financialperformance.”

A major reason for the lack of entirely conclusive data is that it is often easier toquantify the direct financial costs to a company of implementing CR measures thanto measure their intangible benefits (such as employee morale, community supportand overall corporate reputation). However, the ASX Corporate Governance Council

“Corporations are not responsiblefor all the world’s problems, nor dothey have the resources to solvethem all. Each company canidentify the particular set ofsocietal problems that it is bestequipped to help resolve and fromwhich it can gain the greatestcompetitive benefit. Addressingsocial issues by creating sharedvalue will lead to self-sustainingsolutions that do not depend onprivate or government subsidies.When a well-run business appliesits vast resources, expertise, andmanagement talent to problemsthat it understands and in which ithas a stake, it can have a greaterimpact on social good than anyother institution or philanthropicorganisation.”8866

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86 Porter, M. E. and Kramer, M. R., “Strategy and Society: the link between competitive advantageand corporate social responsibility,” Harvard Business Review (December 2006), 78-92.

87 One CR critic is the UK-based development organisation Christian Aid. In its 2004 report, Behindthe mask:The real face of corporate social responsibility (January 2004), Christian Aid argued that CRis a PR exercise by large companies which rarely delivers on its promises, and is being used as ashield against the campaign to introduce tougher environmental and human rights regulations.Thereport, which generated significant media coverage and criticism from CR supporters, is availableat http://www.christian-aid.org.uk/indepth/0401csr/

88 Porter, M. E. and Kramer, M. R., “Strategy and Society: the link between competitive advantageand corporate social responsibility,” Harvard Business Review (December 2006), 78-92. Porter andKramer argue that companies are unlikely to gain value from focusing on activities which areunrelated to their business activities. However, when a company targets CR issues that align withtheir business there is significant potential for shared value – the company profits through costsavings, risk reduction and enhanced reputation; society profits through better social or environmentaloutcomes.To encourage greater CR activities, it is necessary to change the attitude taken bybusiness to CR – they should search for issues that give their company a competitive advantage.This position lends support to the “business” approach to CR endorsed by Australian regulators.

89 Woods, I., “New Frontiers in Extended Performance Reporting,” John V Ratcliffe Memorial Lecture2005, cited in ASX Corporate Governance Council, Review of the Principles of Good Corporate Governanceand Best Practice Recommendations ASX: Explanatory Paper and Consultation Paper (November 2006) at 33.

90 CSR Europe, “CSR facts and figures,” http://www.csreurope.org/aboutus/CSRfactsandfigures_page397.aspx/ (Last Accessed: 5 March 2007).

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has concluded that there is an emerging consensus that taking sustainability or CRissues into account does not detract from investment performance and increasingly,fund managers are treating these issues as key indicators of a company’s performance. 91

6.2 Risk managementA factor closely related to financial performance is risk management. Some in thebusiness community take the view that risk should be solely defined according tofinancial factors. On the other hand, CR proponents say that a well-managed companywill have regard to a variety of risk factors that impinge upon its operations, extendingbeyond financial risks to relevant social and environmental risks. The early identificationand proper management of these non-financial risks may be integral to a company’soperational efficiency and its overall financial performance. The Australian Councilof Super Investors has concluded that:

From the investor’s perspective, identifying social or environmental risks at the point wherethey impact corporate profit and loss or share returns is simply too late to be able to influencecompanies through engagement methods such as are pursued by active investors. By the timea social or environmental issue becomes visible within a company’s financial drivers, companiesgenerally have few choices about how to manage the issues and are at the mercy of governmentand public opinion.92

Failure by a company to identify and properly manage non-financial risks mayprejudice its longer term shareholder value by causing, for example, increasedoperating costs, regulatory intervention, adverse litigation, harm to corporatereputation, or reduced employee loyalty or community support. However, themanagement of non-financial risks may not maximise profits or shareholder valuein the short term, and is viewed by some as an unnecessary financial burden.

6.3 Employee recruitment and retentionAs noted by the Corporations and Markets Advisory Committee,93 many players inthe CR field claim that creating a corporate image of social concern and responsivenesswill help to attract and retain motivated employees. This, in turn, may lead toimproved workplace morale and reduced staff turnover since employees arguablywant to work for a company that shares their values and beliefs. The UK Government’sBusiness Link initiative94 lists the following employee-related benefits obtained bycompanies which implement CR measures:

• a good reputation makes it easier to recruit employees;

• employees stay longer, reducing the costs and disruption of recruitment andretraining; and

• employees are better motivated and more productive.

Conversely, there is a widely held opinion that even Generation X or Y employeesare motivated and recruited solely based on their salary levels and the potentialoffered by a company for job promotion and increased earning capacity.

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91 ASX Corporate Governance Council, Review of the Principles of Good Corporate Governance and BestPractice Recommendations ASX: Explanatory Paper and Consultation Paper (November 2006) at 33.

92 ACSI Discussion Paper, Corporate social responsibility: guidance for investors (September 2005) at 15.

93 Corporations and Markets Advisory Committee, Corporate Social Responsibility – Discussion Paper(November 2005) at 18. Available at http://www.camac.gov.au/camac/camac.nsf/byHeadline/PDFDiscussion+Papers/$file/CSR_DP.pdf

94 See http://www.businesslink.gov.uk


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6.4 Beyond complianceSome critics of CR (including those who cite the economist Milton Friedman95)argue that a corporation’s sole purpose is to maximise returns to its shareholders,while at the same time obeying the laws of the countries within which it works.On this view, to go beyond compliance with the law and spend shareholders’ moneyfor a general social interest (for example, by reducing pollution beyond the amountthat is required by law in order to contribute to the social objective of improvingthe environment) is in itself commercially irresponsible insofar as it reduces returnsto those shareholders.

Companies that make overreaching statements that they do not intend to (or cannot)honour may also expose themselves to liability. In her article, “Overreaching GlobalCodes of Conduct Can Violate the Law,”96 Baker & McKenzie partner Cynthia Jacksonidentified some of the liabilities that a company may expose itself to by rolling outa CR code or policy that goes well beyond mere legal compliance. Multinationalcorporations that attempt to roll out a global CR policy face further problems.A global policy may encounter difficulties with local laws including local privacyregulations, rules requiring consultation with employees before implementingcorporate codes and local regulations that require differential treatment of employeeson the basis of sex, race or religion.

Making a representation that the company will meet a certain standard of conductwithout actually meeting that standard in practice may also expose the companyto litigation. In Kasky v Nike 27 Cal. 4th 939 (2002) the California Supreme Courtheld that Kasky had actionable claims under the California Business and ProfessionsCode for unfair business practices and deceptive trade practices, whereby Nike hadallegedly misrepresenting the nature of the company’s employment practices in China,Vietnam and Indonesia.97 Thus overly aspirational voluntary CR codes can be aninvitation to litigation.

The opposing view98 is that those companies which commit to CR by applyingmeasures above and beyond mere compliance with the law will benefit in threemajor respects:

1. governments and regulators may look more favourably on such companies,which may also be given preferential treatment when applying for permitsor lodging tenders;

2. the companies’ voluntary actions may reduce the likelihood of governmentsimposing additional regulation; and

3. in the event that CR obligations do become mandatory, the companies will havea considerable first-mover advantage in avoiding the high initial costs of compliance.

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95 Friedman, M., “The Social Responsibility of Business is to Increase its Profits”, The New York TimesMagazine (13 September 1970).

96 Jackson, C., “Overreaching Global Codes of Conduct Can Violate the Law,” Los Angeles and SanFrancisco Daily Journal (7 June 2006)

97 It is possible to envisage such an action being brought in Australia under s 52 of the Trade PracticesAct 1974 (Cth).

98 See for example: CSR Network, The Top 10 Benefits of Engaging in Corporate Social Responsibility:The Business Case (November 2004) at 3.

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6.5 Brand image and reputationIt is indisputable that reputation and brand image are key assets for a company ofany size. In fact, Business in the Community estimate that reputation, knowledgeand brand elements contribute to 96% of Coca-Cola’s value, 97% of Kellogg’s valueand 84% of American Express’ value.99 However, whether CR activities are capableof enhancing reputation such that the return is greater than the investment, is acontentious issue. Some commentators maintain that CR appears to have donenothing for the reputation of companies, citing the fact that anti-corporate campaignsrage unabated.100 Conversely, proponents of CR assert that companies will benefitfinancially by adopting CR activities with a view to enhancing corporate reputation,goodwill and brand image.

Strong performance in areas of environmental and social responsibility helps tobuild trust between a company and its stakeholders – a crucial factor in buildinga strong reputation. Enhanced reputation is arguably fundamental in attracting andretaining customers since consumers are becoming more selective and sensitiveto companies’ CR records.101 Similarly, reputation may influence whether or notinvestors will invest.102

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99 Business in the Community (UK), The Business Case for Corporate Responsibility (June 2003).

100 Institute of Public Affairs, Corporate Responsibility is to Make Profits (January 2006) at 1.

101 CSR Europe, The Business Case for Social Responsibility in Small and Medium-Sized Enterprises(July 2002) at 12.

102 Business Council of Australia, Submission to the Parliamentary Joint Committee on Corporationsand Financial Services: Inquiry into Corporate Responsibility and Triple-Bottom-Line Reporting(October 2005) at 22.


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7. ConclusionsCompanies are facing increasing pressure from investors, consumers, NGOs andregulators to consider, and take action towards achieving, CR. In addition, as largecompanies begin to focus on their own CR performance they have begun to exertpressure on their suppliers to report against and act on CR issues. The upshot isthat companies can be caught up in CR initiatives whether they like it or not, andwithout any form of legislative intervention.

Companies already have to comply with laws, regulations and other policies thatregulate health and safety, labour and environment. On top of this, there is a trendtowards requiring companies to consider CR issues in their risk management proceduresand board decision-making. This trend is apparent in calls to impose further obligationson companies to report on, and directors to have regard to, CR.

While for now CAMAC has recommended against extending directors’ duties orreporting obligations under the Corporations Act, the ASX Corporate GovernanceCouncil is currently considering introducing an “if not, why not” reporting requirementfor non-financial business risks. Whether or not such a requirement arises in theshort term, it seems clear is that CR is an area which in future is likely to see moreregulation, not less.

Many companies around the world, and in Australia, have already developed andimplemented some CR strategies. By an early focus on the areas of CR which offer“shared value”, companies may derive business benefits in addition to avoiding morestringent regulation. There is also the potential for competitive advantage throughimproved reputation and differentiation from other companies.

Ultimately, regardless of which side of the debate you favour, there is no longer anydoubt that companies must make a choice: not about what definition of CR theyconsider is right or what activity does or does not fall within that definition butrather whether they will embrace some form of CR or stand back and watch theircompetitors do so.

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8. BibliographyACSI Discussion Paper, Corporate social responsibility: guidance for investors (September 2005)

ASX Corporate Governance Council, Review of the Principles of Good CorporateGovernance and Best Practice Recommendations: Explanatory Paper and Consultation Paper(November 2006). Available at http://www.asx.com.au/supervision/pdf/asxgc_explanatory_paper_consultation_paper_021106.pdf

ASX Corporate Governance Council, Principles of Good Corporate Governance and BestPractice Recommendations (2003), Available at http://www.asx.com.au/supervision/governance/principles_good_corporate_governance.htm

ASX, ASX Listing Rules, Available at http://www.asx.com.au/supervision/rules_guidance/listing_rules1.htm

ASX, Media Release: Update on Revised Corporate Governance Principles Implementation(2 April 2007)

Beatty, A., “G3, the new edition of the Global Reporting Initiative’s sustainabilityreporting framework,” Keeping good companies, 58 (10) (November 2006), 619-621

Beatty, A. and Williams, E., “CSR and corporate governance: the reviews continue,”Keeping good companies, 59(2) (March 2007), 74-79

Boessenkool, A., “More Cos Face Requests For Sustainability Reports This Yr,”Dow Jones Corporate Filings Alert, (25 January 2007)

Business Council of Australia, Submission to the Parliamentary Joint Committee onCorporations and Financial Services: Inquiry into Corporate Responsibility and Triple-Bottom-Line Reporting (October 2005)

Business in the Community (UK), The Business Case for Corporate Responsibility(June 2003)

Carbon Disclosure Project, “Press Release :Worlds Largest Investor Coalitionrepresenting $41 trillion Seeks Further Disclosure on Climate Change andShareholder Value From World’s Largest Corporations” (1 February 2007).Available at: http://www.cdproject.net/pressreleases.asp

Centre for Australian Ethical Research (CAER), The State of Sustainability Reportingin Australia 2005 (March 2006). Available at http://www.environment.gov.au/settlements/industry/corporate/reporting/pubs/survey2005.pdf

Christian Aid, Behind the mask. The real face of corporate social responsibility(January 2004). Available at http://www.christian-aid.org.uk/indepth/0401csr/

Commonwealth of Australia, CLERP 9 Discussion Paper: Corporate Disclosure – Strengtheningthe financial reporting framework on proposed amendments to the Corporations Act (2002).Available at http://www.treasury.gov.au/contentitem.asp?NavId=&ContentID=403

Corporations and Markets Advisory Committee (CAMAC), Corporate Social Responsibility– Discussion Paper (November 2005). Available at http://www.camac.gov.au/camac/camac.nsf/byHeadline/PDFDiscussion+Papers/$file/CSR_DP.pdf

Corporations and Markets Advisory Committee (CAMAC), The social responsibilityof corporations (December 2006). Available at http://www.camac.gov.au/camac/camac.nsf/byHeadline/PDFFinal+Reports+2006/$file/CSR_Report.pdf

CSR Europe, The Business Case for Social Responsibility in Small and Medium-SizedEnterprises (July 2002)

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CSR Europe, “CSR facts and figures,” http://www.csreurope.org/aboutus/CSRfactsandfigures_page397.aspx/ (Last Accessed: 5 March 2007)

CSR Network, The Top 10 Benefits of Engaging in Corporate Social Responsibility:The Business Case (November 2004)

CSR Wire, “What is Corporate Social Responsibility,” The Corporate SocialResponsibility Newswire, www.CSRwire.com (Last Accessed: 5 September 2006)

Dowse, J., “Sustainability measures that count,” Keeping good companies, 58 (8)(September 2006), 466-471

Environment Australia, Triple Bottom Line Reporting in Australia – A Guide to ReportingAgainst Environmental Indicators, (June 2003) Available at http://www.environment.gov.au/settlements/industry/finance/publications/indicators/index.html

Ethical Investment Association Australasia (EIA). Sustainable Responsible Investmentin Australia – 2006, (September 2006), at 4. Available at http://www.eia.org.au/html/s02_article/article_view.asp?id=285

Freshfields Bruckhaus Deringer, A legal framework for the integration of environmental,social and governance issues into institutional investment, report prepared for the UNEPFinance Initiative (October 2005). Available at http://www.unepfi.org/fileadmin/documents/freshfields_legal_resp_20051123.pdf)

Friedman, M., “The Social Responsibility of Business is to Increase its Profits”,The New York Times Magazine (13 September 1970)

Gettler, L., “Business Council fights ‘impractical’ reporting push,” The Age,(22 February 2007), 2

Global Reporting Initiative, Sustainability Reporting Guidelines (G3) (October 2006).Available at http://www.globalreporting.org/NR/rdonlyres/A1FB5501-B0DE-4B69-A900-27DD8A4C2839/0/G3_GuidelinesENG.pdf

Global Reporting Initiative, “Supply Chain project set to demonstrate power ofcollaboration” (February 2007). Available at http://www.globalreporting.org/NewsEventsPress/LatestNews/2007/NewsFeb07SupplyChain.htm

Goldstein, H.W., “Recent Foreign Corrupt Practices Act Developments,” NewYork Law Journal, 237(3) (4 January 2007), 5

Gunther, M., “The Green Machine,” Fortune (7 August 2006)

Higgins, E. and Kerr J., “Lawsuit guns for Hardie bosses,” The Australian,(16 February 2007), 1

Hunting, S.A. and Tilbury D., Shifting towards sustainability: Six insights into successfulorganisational change for sustainability (2006), Australian Research Institute inEducation for Sustainability (ARIES) for the Australian Government Department of the Environment and Heritage, Sydney: ARIES. Available at http://www.aries.mq.edu.au/pdf/InsightsBooket.pdf

Institute of Public Affairs, Corporate Responsibility is to Make Profits (January 2006)

Investor Group on Climate Change Australia/New Zealand (IGCC) and KPMG,Carbon Disclosure Project Report 2006:Australia & New Zealand (CDP4 Report)(October 2006), 31. Available at http://www.igcc.org.au/

Jackson, C., “Overreaching Global Codes of Conduct Can Violate the Law,”Los Angeles and San Francisco Daily Journal (7 June 2006)

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KPMG International Survey of Corporate Social Responsibility Reporting 2005 (June 2005).Available at http://www.kpmg.nl/Docs/Corporate_Site/Publicaties/International_Survey_Corporate_Responsibility_2005.pdf

OECD Declaration on International Investment and Multinational Enterprises (June 2000).Available at http://www.oecd.org/document/24/0,2340,en_2649_34887_1875736_1_1_1_1,00.html

Parliamentary Joint Committee on Corporations and Financial Services, CorporateSocial Responsibility: Managing risk and creating value (June 2006). Available athttp://www.aph.gov.au/senate/committee/corporations_ctte/corporate_responsibility/report/

Porter, M. E. and Kramer, M. R., “Strategy and Society: the link betweencompetitive advantage and corporate social responsibility,” Harvard BusinessReview (December 2006), 78-92

Priest, M. and Skulley, M., “ASIC seeks bans for Hardie asbestos directors,”Australian Financial Review, (16 February 2007), 1

Robinson, M., “Governance in danger of going a step too far,” Australian FinancialReview, (23 February 2007), 75

Scholtens, B., “Finance as a driver of corporate responsibility,” Journal of BusinessEthics, 68(1) (2006), 19-33

UNEP Finance Initiative and UN Global Compact Principles for Responsible Investment(April 2006). Available at http://www.unpri.org/files/pri.pdf

UN Global Compact, “What is the Global Compact?” http://www.unglobalcompact.org/AboutTheGC/index.html (Last Updated: 21 December 2006;Last Accessed: 2 March 2007)

UN Global Compact and Global Reporting Initiative, An Alliance to MainstreamResponsible Corporate Citizenship:A Call to Action From the UN Global Compact andthe Global Reporting Initiative (October 2006). Available at http://www.unglobalcompact.org/docs/news_events/9.1_news_archives/2006_10_06/Alliance_FINAL.pdf

UN Global Compact and Global Reporting Initiative, Making the Connection: Usingthe GRI’s G3 Reporting Guidelines for the UN Global Compact’s Communication on Progress(October 2006). Available at http://www.unglobalcompact.org/docs/communication_on_progress/4.3/Making_the_connection.pdf

Washington, S. “We need to keep our secrets,” The Sydney Morning Herald,(19 February 2007), 19

Watchman, P., “Beyond the Equator,” Time Magazine (30 May 2005) 16-17

Wilder, M. and Ahrens, M., “Australia’s Implementation of the OECD Conventionon Combating Bribery of Foreign Public Officials in International Business Transactions,”Melbourne Journal of International Law, 2(2) (2001), 568-586

Woods, I, “New Frontiers in Extended Performance Reporting”, John V RatcliffeMemorial Lecture 2005, cited in ASX Corporate Governance Council, Review ofthe Principles of Good Corporate Governance and Best Practice Recommendations ASX:Explanatory Paper and Consultation Paper, (November 2006) at 33

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9. Websites

GeneralAA1000http://www.accountability21.net

Australian Corporate Responsibility Indexhttp://www.corporate-responsibility.com.au/

Australian Research Institute in Education for Sustainabilityhttp://www.aries.mq.edu.au/

Australian SAM Sustainability Index (AuSSI)http://www.aussi.net.au/

Australian Corporate Responsibility Index (CRI)http://www.corporate-responsibility.com.au/

Australian Minerals Industry Framework for Sustainable Developmenthttp://www.minerals.org.au/enduringvalue

ASX Corporate Governance Councilhttp://www.asx.com.au/supervision/governance/corporate_governance_council.htm

ASX Listing Ruleshttp://www.asx.com.au/supervision/rules_guidance/listing_rules1.htm

Business Link (UK)http://www.businesslink.gov.uk

CDP Projecthttp://www.cdproject.net/

Corporations and Markets Advisory Committee (CAMAC)http://www.camac.gov.au/

CSR Europehttp://www.csreurope.org/

Dow Jones Sustainability Indexhttp://www.sustainability-index.com/

Equator Principleshttp://www.equator-principles.com/principles.shtml

Greenhouse Challenge Plushttp://www.greenhouse.gov.au/challenge/

Investor Group on Climate Change Australia/New Zealand (IGCC) http://www.igcc.org.au/

Jantzi Social Indexhttp://www.jantzisocialindex.com/

National Packaging Covenanthttp://www.environment.gov.au/settlements/waste/covenant/index.html

Prime Minister’s Community Business Partnershiphttp://www.partnerships.gov.au/

RepuTex SRI Indexhttp://secure1.impactdata.com.au/reputex/

Standards Australiahttp://www.standards.com.au

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Transparency Internationalhttp://www.transparency.org/

UN Global Compacthttp://www.unglobalcompact.org/

UN Principles for Responsible Investmenthttp://www.unpri.org

World Bank Safeguardshttp://go.worldbank.org/WTA1ODE7T0

Websites of CR initiatives undertaken by companiesANZ’s Social Diversity Programhttp://www.anz.com/aus/about/People/diversity.asp

BHP Billiton – Fit for Work/Fit for Lifehttp://sustainability.bhpbilliton.com/2005/repository/health/caseStudies/caseStudies3.asp

Carbon Neutral Commitments

IAG: http://www.iag.com.au/pub/iag/sustainability/carbon_neutral.shtml

HSBC: http://www.hsbc.com/hsbc/csr/environment/hsbc-and-climate-change/carbon-neutrality

Swiss Rehttp://www.swissre.com/INTERNET/pwswpspr.nsf/fmBookMarkFrameSet?ReadForm&BM=../vwAllbyIDKeyLu/sstk-5srlha?OpenDocument

BSkyB News Corporation Annual Report 2006, (30 June 2006), at 24.Available at: http://www.newscorp.com/Report2006/AR2006.pdf

Barclays Bank: http://www.barclays.com/corporateresponsibility/managingourenvironmentalimpactaa.htm

Caterpillar’s Remanufacturing Serviceshttp://www.cat.com/cda/layout?m=94424&x=7

GE ecomaginationhttp://www.ge.com/en/citizenship/customers/markets/ecomagination.htm

HSBC Earthwatch partnershiphttp://www.earthwatch.org/site/pp.asp?c=cdKLIPNpEoG&b=1341193

Telstra’s Access for Everyone programhttp://www.telstra.com.au/accessforeveryone/index.htm?tR=3hm

Toyota Community Spirit program – Employee Volunteer Initiativehttp://www.toyota.com.au/corporate/articles/0,2862,subId%253D1655%2526sectionId%253D230,00.html

Unilever’s World of Workhttp://www.unilever.com.au/ourvalues/environmentandsociety/theunileverfoundation/worldofwork/

Wal-Mart suppliers and sustainability reportshttp://www.walmartstores.com/GlobalWMStoresWeb/navigate.do?catg=691

Westpac and Indigenous Enterprise Partnershipshttp://www.iep.net.au/index.htm

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Australia Corporate Responsibility — A Guide for Australian Directors · 2013-08-09 · FOOTPRINT A measure of a individual or organisation’s impact on the ... Gas that contributes