Corporate

The 4CR strategic approach to corporate responsibility

4CR Working Papers4CR Part B

4CR B1.3 - 19th July 2006

Corporate Responsibility and Sustainability Management By

Dr P Katsoulakos - INLECOM Ltdand Prof Y Katsoulakos - Athens University of Economics and Business

www.csrquest.netwww.4cr.org

The headings in this paper are links to pages in the above website providing additional information and links.

The 4CR framework has been designed to integrate the various strands of corporate responsibility and to support stakeholder oriented strategic management and the staged development of strategic capabilities enabling companies to reach optimised sustainability performance. This paper describes Part A2 of the 4CR framework reviewing CSR application trends and defining a corporate responsibility and sustainability management framework.

The 4CR strategic framework is being developed by Athens University of Economics and Business in collaboration with K-NET SA and INLECOM Ltd utilising their initial research work in the CSRQuest project.

Table of contents1.0 Corporate responsibility practice.........................................................................................3©P. & Y. Katsoulakos 1 19th July 2006

http://www.csrquest.net/

http://www.4cr.org/



1.1 An overview of corporate responsibility practice trends....................................................3The overall picture.............................................................................................................................3Objectives and motivations of CSR companies..................................................................................3CSR investment patterns and implementation features....................................................................4The role of corporate responsibility associations and collaboration networks...................................5Non Governmental Organisations (NGOs) as ‘broker’ in collaborative responsibility alliances.........5

1.2 Corporate Responsibility business models........................................................................6Basic corporate responsibility application template..........................................................................7Identifying the key stakeholders and their interests.........................................................................8Example of CSR policies....................................................................................................................9Examples of corporate responsibility best practices and projects.....................................................9

1.3 CR reporting trends.........................................................................................................11Historic reporting background.........................................................................................................11Recent reporting trends...................................................................................................................12

1.4 Corporate Responsibility associated benefits..................................................................13Preservation of licence to operate...................................................................................................13Improved operational efficiency......................................................................................................13Improved investment opportunities.................................................................................................14New market opportunities...............................................................................................................14Sustainable Competitiveness...........................................................................................................14

1.5 Market surveys................................................................................................................141.6 Corporate Responsibility business success signs............................................................141.7 Corporate Responsibility around the world.....................................................................16

Background......................................................................................................................................16The 2004 DJSI review.......................................................................................................................16The 2005 DJSI review.......................................................................................................................17Accountability Rating 2005..............................................................................................................17

1.8 Corporate Responsibility business maturity....................................................................192 Corporate Responsibility and Sustainability Management Framework..................................22

2.1 Corporate responsibility management challenges..........................................................222.2 Corporate responsibility and sustainability management approach................................232.3 CRS Management Conceptual Model...............................................................................242.4 CRS strategy management.............................................................................................242.5 Stakeholder engagement................................................................................................25

Stakeholder relations management.................................................................................................25Stakeholder participation.................................................................................................................26A stakeholder engagement process model......................................................................................26

2.6 CRS implementation management..................................................................................28Communications and training..........................................................................................................28Quality management.......................................................................................................................29

2.7 Stakeholder oriented performance management............................................................29Approach.........................................................................................................................................29Indicators and measurement frameworks.......................................................................................29A stakeholder oriented performance management process............................................................31Analysis and reporting.....................................................................................................................31Optimisation....................................................................................................................................32

3 Corporate social and sustainability responsibility core practices..........................................343.1 Economic responsibility and governance........................................................................343.2 Human rights and labour standards................................................................................353.3 Health promotion and communities support...................................................................363.4 Environmental responsibility...........................................................................................37

©P. & Y. Katsoulakos 2 19th July 2006



Corporate Responsibility and Sustainability Management 1.0 Corporate responsibility practice

1.1 An overview of corporate responsibility practice trends

The overall pictureThe CSR and corporate sustainability movements are building an impressive momentum with the support from governments and the investment community through Socially Responsible Investing (SRI) and associated corporate sustainability indexes.It is generally accepted that businesses are doing far more than ever before in guarding against ethical compromises, recognising their social and environmental responsibilities, creating enhanced governance transparency and becoming more accountable to their stakeholders.

However today, despite the progress achieved, corporate responsibility and sustainability is primarily about a handful of companies that have made corporate sustainability their business philosophy, some following the principles of their founders established centuries ago, others in response to crises that threatened their survival and a few simply because they recognised the long-term value of doing so. There are also many companies that have adopted in name only corporate responsibility strategies either because they feel obliged to follow their peers or because they see some marketing related benefits. In these cases responsible behaviour may be skin deep but… it could grow deeper.

Overall the large majority of companies that have not adopted CSR or related approaches view such programmes as costly exercises only affordable by large companies. Consequently despite various attempts to clarify the business benefits and the business case, CSR remains a low priority for the vast majority of SMEs.

CSR and corporate sustainability as business practiced approaches are at the infancy stage with relatively few adopters and questionable impact. Evidently it could take some time before Corporate Responsibility and Sustainability becomes part of mainstream business practice.

Objectives and motivations of CSR companiesFor the large companies that have adopted CSR we can distinguish a number of common objectives: increased transparency and improved governance aimed at rebuilding public trust and investor

confidence; delivering wider societal value including support for health and human rights improvements and

environmental protection; contributing to regional development and global partnerships for sustainable development; addressing in a balanced way the concerns of key stakeholders.

These objectives express company expectations / wishes for the future development of their Corporate Responsibility and Sustainability programmes but do not always reflect current practices.Success stories from responsible companies, for example the leading companies in SRI indexes, confirm that outstanding financial performance is not incompatible with good sustainability performance. However it should be recognised that the motivations of companies to address corporate responsibly



http://www.csrquest.net/default.aspx?articleID=13224&heading=


and sustainability varies widely from instrumental approaches using responsible practices as a means of maximising profits to intrinsic approaches committing the company to upholding its values and principles irrespective of the impact on financial performance.

KPMG's 2005 Survey of corporate responsibility reporting highlights the diverse motivations for corporate responsibility (74% economic and 53% ethical) and the following important business drivers:a) to have a good brand and reputation;b) to be an employer of choice;c) to have and maintain a strong market position;d) to have the trust of the financial markets and increase shareholder value;e) to be innovative in developing new products and services and creating new markets.

CSR investment patterns and implementation featuresLack of economic indicators and analytical methods to evaluate the contribution of CSR investments in a company’s performance restrains management from embarking on CSR investments. This situation is likely to deteriorate in recessionary periods when non essential investments are cut back.In general large companies appear to be happier to invest in establishing a foundation dedicated to supporting good causes rather than investing to integrate corporate responsibility in their strategies and operational processes or to invest in developing appropriate capabilities further confirming the early stage in CSR mainstreaming.

The investment attitudes outlined above are also reflected in the implementation approaches which can be grouped into two categories: opportunistic and stable as described in the following table.

CSR implementation patternsCSR implementation type

Horizon Features

Opportunistic Short term Few activities, questionable substance, no continuity, no dedicated team, no development plans.

Stable Long term Dedicated team, coherent programme, historic evidence of responsible performance, advantages/ disadvantages of specific actions evaluated, appropriateness for sector and size and benchmarking considered.

In examining the actual CSR operation in various companies, it would appear that there is some confusion in many employees as to what CSR is, which activities constitute CSR, what the boundaries are and how CSR can be integrated in mainstream business operations. The traditional activities of sponsoring, donations, charities have to be extended by advanced forms of responsible behaviour affecting all company decisions, functions and processes through programmes on human potential development, contribution to the social welfare, environmental protection, etc. As a result each company has to discover to a large extend its own unique ways to manage Corporate Responsibility and Sustainability which given the complexity of the change management challenge entails high costs and performance penalties. ©P. & Y. Katsoulakos 4 19th July 2006



CSR is based on corporate self-regulation and voluntary initiatives beyond legal obligations. However, this often leads to misleading perceptions and interpretations. Sometimes it is said that a particular activity is not CSR as it is governed by some standard or regulatory requirement. Strictly speaking, even though this may be the case, CSR practising companies are expected to have policies that emphasise and safeguard compliance to law and regulatory standards. Corporate responsibility encompasses legal, ethical and sustainability responsibilities. In this context a company that does not comply with its legal responsibilities cannot legitimately claim to be a CSR company.

Operational uncertainties and difficulties are compounded by recent observations of ‘company anxiety’ regarding CSR communications. Over-promising or declarations of rightness and good intentions could cause the mistrust of consumers and stakeholders creating the opposite effects from those expected. Companies are recognising that corporate responsibility communications should be low tone and straightforward reflected in the actual behaviour of every member of the company which is extremely difficult to achieve before CSR is integrated into the company’s bloodstream.

The role of corporate responsibility associations and collaboration networksA way of overcoming the uncertainties of how to develop efficient ways of implementing CSR is through collaboration with other companies with similar objectives which can be facilitated by CSR associations or collaboration networks.This together with the initial political pressure to progress a CSR agenda has led to the emergence of a relatively large number of associations which helped enormously in setting the initial momentum and helped to create business communities with stable implementations. The downside is that each association promotes its own brand of social responsibility whilst some of the standards such as GRI are not followed widely. This coupled with the fact that SMEs are not as yet seriously involved in the CSR and sustainability movement poses risks to the wider take up of corporate responsibility practices by the business world.

To turn the initial strength of the CSR related associations into long term success for sustainable development, greater convergence of CSR related approaches and greater collaboration between associations would be beneficial.

Non Governmental Organisations (NGOs) as ‘broker’ in collaborative responsibility alliancesThe key ‘broker’ in collaborative responsibility alliances is often represented by the Non Governmental Organisations (NGOs). The World Bank defines NGOs as "private organisations that pursue activities to relieve suffering, promote the interests of the poor, protect the environment, provide basic social services, or undertake community support”. Organizations like Oxfam, Greenpeace, WWF, Amnesty International and thousands of others serve the public on a national and international scale.

Today an estimated 35,000 organisations qualify as international NGOs (with programs and affiliates in a number of countries). Many recent surveys place NGOs as the most trusted organisations by the public invariably far more trusted than national governments.




In recent years NGOs have seized the opportunity to increase their impact in society by focusing on reforming market systems rather than confronting them, working closely with business organisations on human rights, energy, and environment and community projects. The vital role of NGOs in sustainable development was recognized in Chapter 27 of Agenda 21, leading to revised arrangements for consultative relationship between the United Nations and non-governmental organizations.

NCOs could therefore play a central role in strengthening and maintaining the momentum of the corporate responsibility and sustainability movement by promoting and facilitating collaboration networks for sustainable development.

1.2 Corporate Responsibility business modelsThe common CSR and corporate sustainability approach adopted by business organisations involves assessing their economic, social and environmental impact, taking steps to improve it taking into account the requirements of their stakeholders and reporting on relevant measurements. In this context, corporate responsibility means managing in a transparent manner the economic, social and environmental impact of the systemic organisational activity. This means defining performance targets for example on revenue growth and CO2 emissions and reporting on actual results for the specified period without reference to related business processes.

The management process involves developing CSR or sustainability policies and strategies reflecting stakeholder needs which are implemented through a CSR/sustainability programme and then annual reports are produced to inform stakeholders of the actual progress achieved.

Policy development and implementation programmes are normally carried out in a company specific way as a no methodologies have been established to guide these processes.On the other hand CSR related standardisation has focused on reporting standards. Further various CSR associations have produced reporting guidelines and even SRI assessment criteria and assessment methods provide useful references for the annual reports. It follows that the production of the annual ‘corporate responsibility report’ has emerged as the central activity in CSR or corporate sustainability management.

As the quality of the annual corporate responsibility reports increases (see reporting trends – next section) and the report contents are becoming integrated with the traditional annual financial reports first the important dimension of responsible behaviour namely enhanced transparency is addressed and secondly company social and environmental impacts are receiving increased attention and are slowly considered within a single framework with financial issues.

Basic corporate responsibility application templateA template reflecting the prevailing business model is given in the following table.

Key stakeholders

Responsibilities classification[Focus areas selected by each company reflecting

Policies StrategiesProgramme

MeasurementReporting





priorities of key stakeholders]

Identification of key stakeholders and their primary needs / concerns

Economic responsibility and Governance[Products, Customers, Suppliers, Ethical standards] Human Rights and Labour StandardsHealth promotion and communities supportEnvironmental responsibility

Whatare the company’svalues and objectives in each responsibility area

Impact assessmentImprovement targets and strategiesAction programme

AchievementsPerformance indicatorsProgressBenchmarkingIndependent reviewsFeedback

First companies identify their key stakeholders and their primary interests. This is used to select the responsibility areas they wish to focus on (responsibilities classification). An example of typical responsibility categories are identified in the above table based on the Global Compact and related classifications (expanded in section 3).

The next stage is formulation of policies for each area selected and development of related strategies. The corporate responsibility policies should be part of and integrated with the overall corporate values and policies but this is not as yet common practice.

Formulating strategies and the CSR programme typically starts with impact analysis facilitating the specification of improvement targets in line with the specified policies. Quantifiable improvement targets and indicators are crucial to a successful corporate responsibility programme. Strategies, which should also be aligned with the overall business strategy, are then developed following evaluation of alternatives to achieve the improvement targets. Strategies are transformed into an action plan, the CSR programme, which is implemented by operational units through extensions of existing processes or through specific projects.

The CSR programme is monitored against the indicators set in strategy stage and the results are reported through CSR, sustainability or related reports. These reports which represent the central component of CSR management are often made public for transparency purposes and frequently provide an input into the assessment process undertaken by SRI evaluations or other benchmarking exercises.

It should be highlighted that companies operating in high impact sectors such as power generation, oil companies, transport and heavy industries (see also The FTSE4Good Indexes Sector Classification) have the burden to invest heavily on reducing their impact on environment.

Identifying the key stakeholders and their interests It can be assumed that most companies include shareholders, employees and customers as key stakeholder groups and then add to others particularly relevant to their circumstances [see Stakeholder classifications, who are stakeholders].

The following table provides an example of the typical interests and expectations of the main groups of stakeholders








stakeholders interests Expectations

Shareholders Increase in the value of invested capital

Stock price gainsDividend payoutsInfluence on company management

Employees Job security, quality of life and work

Optimized income / work interest Job security/quality, personal developmentProspects and participative opportunities

Customers Satisfaction of needs Good value for moneyQuality service

SuppliersProfitability and value growth

Acceptable marginsIndependence Secure, long-term relationship

Government Healthy macro-economyCompliance to laws and regulationsEconomic growth, jobsTaxes and other charges

Society Social welfareSponsorship and community investmentSocial equityEnvironmental protection




Example of CSR policies The following table provides an example of typical CSR policies from a UK insurance group (AVIVA Plc). Policies are defined for eight responsibility areas which are included in the classification presented earlier.

Customers WorkforceWe seek to provide our customers with a service hallmarked by integrity, quality and care (business unit specific policies apply).

We are guided by our aim to be the employer of choice in all countries in which we operate.

Suppliers Health and safetyWe regard suppliers as our partners and work with them to help us achieve our policy aspirations in the delivery of our products and services.

We are committed to providing a working environment which is both safe and fit for the intended purpose and ensures that health and safety issues are a priority for all business operations.

Standards of business conduct CommunityWe are committed to ensuring that our business is conducted in all respects according to rigorous ethical, professional and legal standards.

We strive to be a good corporate citizen around the world, recognising our responsibility to work in partnership with the communities in which we operate.

Human rights EnvironmentWe respect the Universal Declaration of Human Rights and seek to be guided by its provisions in the conduct of our business.

We are committed to a programme of management, continuous improvement and reporting of our direct and indirect impacts, which marks our contribution to improving the world in which we live.

Examples of corporate responsibility best practices and projectsThere are many information sources on corporate responsibility best practices and projects from government websites (e.g. http://www.csr.gov.uk/bestpractice), from SRI indexes, and from associations such as CSR Europe, WBCSD, BITC, the Ethical Corporation, etc.A number of individual companies also provide best practices interactive websites to promote stakeholder engagement.

A good source of examples of how companies can put in practice corporate sustainability principles is the Sustainable Livelihoods project undertaken by the World Business Council for Sustainable Development (WBCSD). It includes 14 case studies transforming innovative ideas into commercially-viable realities and demonstrating innovative sustainability oriented business models. Examples from these projects include: Procter & Gamble (P&G), for instance, is working with UNICEF and relief agencies to bring its water

purifying sachets, to disaster-stricken areas and remote villages.



http://www.csr.gov.uk/bestpractice


Philips is collaborating with local hospitals and NGOs in India to provide specialist diagnostic services to rural areas.

Leading cement producer, Holcim is working with a microfinance provider to supply low-cost housing solutions in Sri Lanka.

Unilever has partnered with Ghana’s health ministry and UNICEF to reduce the prevalence of iodine deficiency, thus bringing major improvements in maternal and child health.

SC Johnson in Kenya, GrupoNueva in Guatemala and Rabobank in Indonesia are significantly improving the livelihoods of local farmers through boosting their competitiveness.

ConocoPhillips is developing the skills of women micro-entrepreneurs in Venezuela. EDF provides affordable solar energy to villagers in Morocco, too remote to connect to the national

grid. BP, Eskom and Rio Tinto are working with local small and medium-sized enterprises (SMEs) to

strengthen the fabric of both developing and transitional economies. Vodafone has developed a microfinance payment platform for African entrepreneurs.

As indicated earlier NGOs are playing a key role in corporate responsibility projects focusing on social welfare, mediation or consultation. Illustrative project examples include: Greenpeace has collaborated with UK utility nPower to develop and promote a jointly branded

renewable energy product which generates environmental returns through reduced greenhouse gas emissions. Their Juice initiative offers regularly priced green power from an offshore wind farm in north Wales

WWF and HSBC developed together a sustainability strategy for the bank which has already resulted in a new credit policy for the forest industry and senior staff trained in sustainability issues.

Amnesty International is supporting the new United Nations World Programme for Human Rights Education and has worked with companies operating in zones of conflict to train business executives in human rights issues.

Rainforest Alliance and Kraft together developed a common code for promoting sustainability among coffee growers and distributors and sustainable coffee production in Mexico, Colombia, Brazil and Central America.




1.3 CR reporting trends

Historic reporting background There are a number of pioneering efforts of socially responsible companies undertaking social and ethical auditing and reporting. The retailing group Migros in Switzerland was involved in this process in the 1960's. In the USA an early example is Abt & Associates (USA based research and consulting firm) which in 1972 added an environmental report to its annual financial statements. The Abt report was pioneering, but its concept of social responsibility was strictly related to air and water pollution and its financial auditor disclaimed any responsibility for the data on the basis that no standards had been introduced for such audits.

In the 70’s a number of countries promoted environmental and social reporting. In France, law (the Bilan Social) mandated companies with more than 300 employees to produce an employee report. Germany engaged in the social model of corporate management. The Council on Economic Priorities and others in USA began to rate companies publicly on their social and environmental performance. Social Audit Limited was set up in the UK in 1978 to undertake external audits. India’s largest integrated private sector steel company engaged in social audit in 1979.

In the 1980s, many companies considered it necessary to introduce quality management and then environmental management systems. However, the main non-financial reports were not linked to corporate performance and were criticised for lack of substance. The European focus during that period was employee relations with attention to standardisation and impact measurement. In the US during the late 1980’s reporting started to grow in response to the 1987 'right to know' legislation which established the Toxic Releases Inventory expanded by the Pollution Prevention Act of 1990.

Since the early 1990s, companies like the Body Shop in the United Kingdom, Shell Canada, Ben & Jerry's in the United States, the Danish Bank Sbn have pioneered social reporting practices. Their approaches have been based on relatively sophisticated efforts to determine what is considered to be important for each of their key stakeholder groups and to define specific objectives and action programmes for priority areas of performance improvement. The annual social reports evaluate performance against these plans just as annual financial reports show financial results compared to prior years and sometimes against objectives. However, even these companies do not escape criticism and questioning of their motivation.

An interesting case is the brief history of mandatory reporting in the UK. A new Operating and Financial Review (OFR) became a requirement from the 1st of April 2005 for all fully-listed UK companies. The broad scope of the OFR was to enable shareholders to review a range of information on the company’s strategy and performance. Similar to the Sarbanes-Oxley law in the US, the OFR was to include an analysis of both past and future issues and performance. OFRs were supposed to be produced after “due and careful enquiry” and had to address environmental, social and community issues where applicable. The UK government abolished OFR in December 2005. Reporting on environmental and social impacts is no longer a legal requirement in the UK, possibly reinforcing the voluntary nature of CSR reporting.





The EU Accounts Modernisation Directive is intended to increase the comparability between companies in the EU through a common reporting framework. To achieve this objective, the Union requires common financial reporting standards that are transparent, fully understood, properly audited and effectively enforced. The Directive brings European accounting requirements in line with modern accounting practice, requires enhanced disclosure in directors’ reports and increases the reporting remit to take account of the growing demand for non-financial comment and analysis.

Recent reporting trendsAt the end of the 1990s CSR related reporting was dominated by environmental reports as shown by the corporateregister.com, an online directory of corporate environmental, social and sustainability reports. During the year 2000 the corporate responsibility reports were at the level of 1% and sustainability reports at 5%.

The KPMG 2002 International Survey on Corporate Sustainability Reporting showed that non-financial reporting was becoming a mainstream activity for big corporations, with 45 percent of Global Fortune Top 250 companies publishing a report. The focus of these reports was shown to be shifting from the inclusion of only environmental performance to combined environmental, social and economic reports (i.e. sustainability reports). An increasing number of reports are being externally verified. The surveys from corporateregister .com indicated that sustainability reports increased from 5% to 15% between 2000 and 2002 and Corporate Responsibility reports increased from 1% to 7% in the same period.

The KPMG 2005 International Survey on Corporate Sustainability Reporting confirms that non-financial reporting is increasing and improving. Increases from the 2002 report were of the order of 15% in Global Fortune Top 250 companies, 30% in N100 (top 100 companies in 16 countries) and highest national increases were seen in Italy, Spain, Canada and France. Almost two-thirds of CR reports included a section on corporate governance but lacked detail on structure and implementation. Stakeholder dialogue was mentioned in almost 40 percent of the reports in the context of CR policies.

Sustainability reports are now beginning to include qualitative discussions of the linkages between sustainability and shareholder value with few reports providing information on specific bottom-line benefits the company has received or anticipates receiving from pursuing sustainability.




1.4 Corporate Responsibility associated benefitsThe business benefits commonly linked with CSR and corporate sustainability approaches are outlined in the following sections.

Preservation of licence to operatePossibly the crucial benefit for companies adopting CSR or corporate sustainability is preservation of their social licence to operate through enhanced reputation and social capital.

Enhanced reputation results from company focus on customer value, attention to employees and the environment, respect for the suppliers and good record on human rights. Investment in local communities normally attracts positive media attention and coverage in the local press where outstanding CSR or sustainability performance can lead to participation in high profile national/international events or awards.Overall, good corporate responsibility and sustainability performance increases a company’s reputation strength and secures its social licence to operate.

Enhanced social capital results from investment on multi-stakeholder processes, international collaborations and community programmes. Strengthened relationships with international organisations, NGOs, local authorities and other regional bodies become an important dimension of social capital at company, regional and international levels.

Improved operational efficiencyImproved risk control is attainable from transparency and broader awareness of financial, environmental and social risks. Enhanced risk management has a positive impact in operational efficiency and can result in significant direct cost savings depending on the size of the company and the sector in which it operates.

Increased efficiency could also result from: investment in technology to control environmental risks which often produces additionally cost-

cutting benefits; eco-efficiency which means making more from less by reducing ecological impacts and resource

intensity throughout the life cycle of products; continuous improvement in supply chain processes; improved human capital through talent attraction and retention and a motivated and participative

work force; lower health costs from healthier employees that become more productive and more effective.





Improved investment opportunitiesImproved investment opportunities from SRI funds set up specifically for investing in CSR and sustainability practising companies and from investors that take into account sustainability performance criteria.

New market opportunitiesNew market opportunities arise from social innovation and green products and services. Social innovation represents social learning and problem solving in areas ranging from improvements in human health, education, human welfare, environmental protection and energy saving instruments.

Sustainable CompetitivenessEnhanced sustainable competitiveness can be achieved through innovative stakeholder approaches to strategic management.

1.5 Market surveysIn 1999, a poll1 of 25,000 citizens across 23 countries showed that perceptions of companies around the world are more strongly linked with corporate citizenship (56%) than either brand quality (40%) or the perception of the business management (34%).

A recent MORI report indicates that the European opinion is that CSR effects significantly purchasing decisions2. There was a substantial increase in the percentage of consumers affected by corporate responsibility from 1997 reaching a maximum of 46% in 2001. There is a negative trend in recent years (38% in 2003) possibly explained by increased levels of economic uncertainty in Europe and internationally.However, it must be remembered that most surveys show that consumers are more concerned about things like price, quality, or sell-by date than ethics.

Generally market surveys indicate that the large majority of consumers are more likely to buy products associated with a good cause when price and quality are equal and that the majority of people would be more loyal to an employer that supports the local community.

1.6 Corporate Responsibility business success signsDemonstrating that CSR and business principles are not mutually exclusive and can in fact be mutually beneficial is central to the corporate responsibility movement.

Indicative signs that CSR and related approaches work well in the marketplace comes currently from two sources: success of responsible corporations success of Socially Responsible Investing.

1 "Winning with Integrity" report, MORI, Co-operative Bank2 http://www.mori.com/csr/database.shtml©P. & Y. Katsoulakos 14 19th July 2006





Harvard researchers John Kotter and James Heskett3 showed that over an eleven-year period, sales and employment growth at stakeholder oriented companies were significantly higher than at shareholder-focused companies. Specifically, stakeholder oriented companies reported four times the growth in sales and eight times the growth in employment. The authors argued that successful, visionary companies, although very diverse in other ways, put a lower priority on maximizing shareholder wealth and greater emphasis on serving the interests of a broad mix of stakeholders. The key remark here is that although it is not possible to distinguish the effect of corporate responsibility from other strategies in corporate performance if the only common strategy in a large number of successful companies is stakeholder orientation then at least this represents a strong link between stakeholder approaches and business success.

Waddock and Graves (1997) correlated companies' previous year CSR ratings with financial performance on measures such as return on assets (ROA), return on equity (ROE), and return on sales (ROS). They found quantitative support for the assertion that there is a connection between how a company treats its stakeholders and financial performance.

A number of surveys indicate that, over the longer term, companies that rate highest on ethics and corporate social responsibility are the most profitable4.

Despite the success of CSR companies described by the studies outlined above there is not yet compelling evidence or theoretical ‘proof’ that responsible behaviour results in economic performance improvements. Distinguishing the influence of CSR and sustainability strategies from the effect of other business strategies on the economic or financial success of a company remains a research topic.

The success of Socially Responsible Investing (SRI)5 , having grown during the last decade to represent close to 10% of available resources worldwide, provides evidence of good performance of responsible businesses. However, even though there is some evidence that SRI indexes outperform comparable lists, this is not entirely consistent in recent years and superior performance cannot be attributed quantitatively to responsibility related factors.

If, as anticipated, stock exchanges begin to include some elements of corporate responsibility in listing requirements, then the credibility of the assumption that corporate responsibility contributes to better performance will be further enhanced.

1.7 Corporate Responsibility around the world

Background3 Kotter, John, and Heskett, James. (1992) Corporate Culture and Performance . New York: Free Press.4 Canadian Centre for Social Performance and Ethics at the University of Toronto; Orlitzky, Schmidt and Rynes 2003; Zairi and Peters 20025 Social investment forum www.socialinvest.org©P. & Y. Katsoulakos 15 19th July 2006



http://www.socialinvest.org/


Corporate Social Responsibility and sustainability has become a popular business concept, especially in developed economies. Arguably, CSR and corporate sustainability is founded on Anglo-American philosophies and values and certainly, there are distinct differences in the way corporate responsibility is perceived and deployed in different countries around the word.

Traditionally in the United States, CSR has been defined much more in terms of a philanthropic model. The primary focus of US Companies is on maximizing profits in the interests of the shareholders, fulfil their duty to pay taxes and donate a certain share of the profits to charitable causes.

The European model of CSR and corporate sustainability is much more focused on operating the core business in a socially responsible way, complemented by investment in communities for solid business case reasons. Reconciling the need to increase company value in the long term but also considering the interests of all stakeholders is a typical European approach.The European model has two important advantages: corporate responsibility becomes an integral part of the wealth creation process - which if managed

properly should enhance the competitiveness of business and maximise the value of wealth creation to society;

there is the incentive to integrate CSR and sustainability in the overall corporate strategy and in the business processes and to improve responsibility related practices as part of the company’s overall quality management system.

A survey6 in 1999 found strong interest in corporate social performance in Australia, Canada, the USA and the UK, while there was least concern in China, Nigeria and Kazakhstan. Somewhere in between were Germany, Japan, Indonesia and South Africa.In the same survey, the USA and the UK dominated the FTSE4Good Global Index7 with 41 per cent and 18 per cent of constituent companies respectively.

The 2004 DJSI reviewThe Dow Jones Sustainability Indexes 2004 Review8 highlighted some key regional differences. Japanese firms took the lead in environmental management and performance. They also showed the greatest increase in terms of participation. Compared to 2003, the number of Japanese companies taking part in the DJSI assessment went up by 40%. European companies led in environmental and social reporting as well as labour indicators and human capital development. America led in the area of codes of conduct and compliance, while Australia ranked top in corporate governance.

The main conclusions from the 2004 DJSI review of sustainability developments were: Sustainability strategies were further integrated into companies’ core businesses evident in new

principles in codes of conduct, wider scope and coverage of environmental and social performance measurement and alignment of sustainability targets with remuneration systems.

Policies and practices were increasingly expanded to cover supply chain management including the definition of environmental and social standards and external audit procedures for suppliers.

6 Environics International Ltd. Toronto, (1999) Millennium Poll on Corporate Social Responsibility.7 FTSE4Good.com 8 http://www.sustainability-indexes.com/htmle/assessment/review2004.©P. & Y. Katsoulakos 16 19th July 2006



Corporate governance was improving reflected in splitting the role of chairperson and CEO as well as reduced external auditors’ conflicts of interest.

Sustainability reporting was increasingly integrated in Annual Reports and external verification as well as internal assurance systems were spreading.

Reductions in normalised greenhouse gas emissions, energy consumption, water use and waste generation provided improvements in eco-efficiency.

The 2005 DJSI reviewThe 2005 DJSI review provided the following analysis of recent sustainability developments: Sustainability is continuing its move from corporate strategy and operations into product and

service offerings reflected in the integration of eco-design requirements in the electronics industry, increasing implementation of environmental criteria in project financing and a wider use of life cycle analysis in the chemical industry.

Companies are converging in their approaches to corporate governance and environmental reporting with the emphasis shifting towards sector-specific issues such as healthy nutrition in the food industry, business opportunities for consumer goods in emerging markets and anti-crime prevention in the financial sector.

Transparency and accountability along the whole supply chain are increasingly visible through policies and control mechanisms with industry groups such as the Business Social Compliance Initiative (BSCI) adding further impetus to this development.

Sustainability indicators are increasingly linked to financial value drivers and integrated into Annual Reports.

Corporations widely recognise and acknowledge the importance of human capital management for their success but there is still considerable scope for improvements in all industries in measuring, controlling and reporting on issues such as talent attraction, organisational learning, and employee performance indicators.

Overall, sustainability performance continues to advance across all sectors. At the same time, substantial room for progress in sustainability remains on the corporate agenda.

Certainly the key development in 2005 is movement towards sustainability oriented products and services which could provide the impetus to bring corporate sustainability mainstream.

Accountability Rating 2005AccountAbility and csrnetwork have developed the first global index, the Accountability Rating, which measures the state of corporate accountability by ranking individual companies against six key areas: stakeholder engagement, strategy, governance, performance management, public disclosure and assurance.

The 2005 report9 for the world’s 100 largest companies shows that all regional averages have raised compared with 2004 with European companies continuing to lead with an average overall score of 40 (compared with 31 in 2004). Asian companies are next with 28 (2004: 25), with North American companies lagging behind with 24 (2004: 16). The rating found that 88 percent of European companies agree with internationally recognized standards of human rights and environmental protection – against only 24 percent in the United States. Moreover,

9 www.accountabilityrating.com©P. & Y. Katsoulakos 17 19th July 2006



American companies evidence little inclination to engage with stakeholders to understand their concerns and align their policies accordingly. Even fewer want to subject themselves to independent evaluation of their social and environmental performance.

European companies – BP, Shell Group, Vodafone, HSBC Holdings and Carrefour – occupy the top five slots in the published ratings.




1.8 Corporate Responsibility business maturityThere is no doubt that businesses are doing far more than ever before to: increase transparency and improve governance aimed at rebuilding public trust and investor

confidence; deliver wider societal value including support for health and human rights improvements, and

environmental protection; contribute to regional development and global partnerships for sustainable development; balance the concerns of their key stakeholders.

Increasingly, corporate responsibility is viewed as part of the evolution of market-based societies from an unbridled to a mature capitalism. “The more developed and sophisticated corporate responsibility is, the more mature and stable market capitalism becomes”10 .

National culture, ‘responsibility’ characteristics of governments and effectiveness of public institutions have a major influence in corporate behaviour. Inevitably an individual or a company, largely irrespective of their values, behave differently in a well organised ethical national environment than in one which is not. Interestingly the 2005 Global Competitiveness Report from the World Economic Forum shows that Nordic countries occupy five of the top 10 positions sharing a number of characteristics that make them extremely competitive, including very healthy macroeconomic environments and public institutions that are highly transparent and efficient. It is not coincidence that companies from these countries also feature frequently as top performers in corporate responsibility assessments.

To draw a balanced view of the impact of CSR in business behaviour it is necessary to draw attention to the fact that following the US Enron scandal, 2003 was Europe’s disaster year in terms of accounting fraud and other criminal activities uncovered at Switzerland's Adecco, the Netherlands' Ahold, and the Italian Parmalat. As a consequence claims of superior European corporate culture which has embraced CSR and sustainability practices became questionable.

Furthermore despite the progress achieved the overall impact of CSR on sustainable development remains questionable as we may not even be close to “living within the carrying capacity of supporting eco-systems”. WWF, the global conservation organisation, in the fifth 'Living Planet Report 2004' has warned that human consumption of natural resources is currently outpacing by 20% the earth's capacity to regenerate. Although the basis of these estimates is disputed by some specialists, few have any doubts that all countries have difficulties in meeting their sustainability strategies. Further evidence of the problem comes from preliminary calculations of the Office of Atmospheric Research at the National Oceanic and Atmospheric Administration (March 2006) that the concentration of carbon dioxide in the atmosphere climbed to record 381 parts per million during last year up 2.6 parts per million. Also according to NASA, 2005 had the highest annual average surface temperature worldwide since instrument recordings began in the late 1800s.

It can be concluded that CSR and corporate sustainability as business practiced approaches are at the infancy stage. One can observe similar patterns to other popular schemes such as Total Quality 10 Culpeper R. 1998. The Evolution of Corporate Responsibility: From Unbridled to Mature Capitalism, Address to the

Canadian Centre for Ethics and Corporate Policy, Toronto 2nd December 1998. ©P. & Y. Katsoulakos 19 19th July 2006




Management and the Learning Organisation. The similarities are the early enthusiasm, the momentum building initiatives, the doubts whether tangible benefits will materialise and the few ‘real’ early adopters.

There are also some encouraging differences including: support for CSR and corporate sustainability from the financial community through SRI and

associated corporate sustainability indexes; support from a number of committed business associations such as CSR Europe, WBCSD, BITC, GRI,

etc.; early evidence of business benefits and serious attention on measurement and benchmarking; general consensus that CSR and corporate sustainability is a necessity and a critical element in the

world’s sustainable development; commitment by the majority of nations to implement sustainability strategies.

CSR movement evolution characteristics are summarised in the following diagram. Key points include: CSR reporting is becoming well established; SRI has grown consistently and has become an established branch for investment; sustainability and stakeholder orientation is increasing; adoption rates seem to be slowing down; Impact is not as yet visible.

On the positive side it is becoming clear that leading companies in the future will have missions and strategies to constantly increase shareholder value but as an integral part of those strategies will also recognise and act upon the potential for: addressing the interests of a broad range of stakeholders; building societal value; contributing to coalitions aimed at increasing the capacity for sustainable development.

Mainstreaming of corporate responsibility in business strategies and operational processes and wider diffusion in companies of all sizes remains the main goal of the corporate responsibility movement from 2000 onwards.©P. & Y. Katsoulakos 20 19th July 2006



In the words of the Rt Hon Gordon Brown Chancellor of the Exchequer in the UK in 2006: “Now we need to move towards a challenging measure of corporate responsibility, where we judge results not just by the input but by its outcomes: the difference we make to the world in which we live and the contribution we make to poverty reduction”.




2 Corporate Responsibility and Sustainability Management Framework

2.1 Corporate responsibility management challengesAs the business case for Corporate Responsibility and Sustainability is becoming clearer it is also becoming evident that it could take some time before Corporate Responsibility and Sustainability becomes part of mainstream business practice.

It is widely recognised that implementation of Corporate Responsibility and Sustainability requires time to reach maturity and the speed of achieving mainstreaming is dependant on leadership, training and organisational capabilities to integrate CSR and sustainability policies in the overall business strategy and in core operational processes.

Socially and environmentally responsible behaviour is multisided and is related to all functions, decisions and processes in a company. The width and complexity of the Corporate Responsibility and Sustainability scope makes mainstreaming a change management challenge necessitating carefully planning and possibly long term commitment to developing appropriate capabilities.

Key challenges in Corporate Responsibility and Sustainability management include: managing in an integrated manner the full lifecycle of CRS strategy formulation, implementation,

evaluation and evolution incorporating stakeholder participation; aligning responsibility strategy to corporate strategy focusing on:

rationalising and harmonising the economic, compliance, ethical, and sustainability dimensions of corporate responsibility and sustainability in the context of stakeholder requirements;

managing non-financial risk, particularly to brand, reputation, local licence to operate and to performance instability as an integral part of corporate sustainability management;

integrating eco-design and other sustainability requirements into product and service offerings; managing the sustainability performance optimisation process to continually increase stakeholder

satisfaction; developing strategic responsibility and sustainability capabilities; quantifying the expected returns on required investment.




2.2 Corporate responsibility and sustainability management approachWe define Corporate Responsibility and Sustainability (CRS) as a company's verifiable commitment to operate in an economically, socially and environmentally sustainable manner that is transparent and increasingly satisfying to its stakeholders.

Stakeholders include investors, customers, employees, business partners, local communities, the environment and society. The emphasis is on transparent and verifiable stakeholder driven sustainable business operation. Sustainable business operation means addressing the needs of present stakeholders while seeking to protect, support and enhance the human and natural resources that will be needed by stakeholders in the future.

Corporate Responsibility and Sustainability incorporates: Corporate Social Responsibility – CSR; Corporate Sustainability; Corporate Governance.

Corporate Responsibility and Sustainability management addresses in an integrated manner the different dimensions of corporate responsibility to deliver optimum corporate responsibility and sustainability performance.

Corporate responsibility performance is measured by: compliance to legal and regulatory requirements; accountability to stakeholders; ethical performance on stakeholder issues.

Corporate sustainability performance is measured by a company’s economic, social and environmental impact and associated stakeholder satisfaction. Sustainability impact is defined as follows: Economic impact: sustainability of the businesses and its 'human capital’ and engagement in

sustainable wealth creation processes at global national and local levels. Social impact: the impact of products or operations on human rights, labour, health, safety, regional

development and other community concerns. Environmental impact: the impact of products or operations on environmental degradation including

the company’s related emissions and waste.

It is pointed out we distinguish between economic impact in the context of corporate sustainability as defined above and profitability. The 4CR stakeholder oriented strategic management (Part C) addresses competitiveness and profitability within the ‘total’ responsibility perspective as defined in the 4CR corporate responsibility taxonomy.

2.3 CRS Management Conceptual Model







Corporate responsibility and sustainability management involves the following four components as shown in the following diagram: Corporate responsibility and sustainability strategy management; Stakeholder engagement; Corporate responsibility and sustainability implementation management; Stakeholder oriented performance management.

The above are interlinked through learning feedback loops that support strategy development and continuous implementation improvements11 .Learning and knowledge management is particularly important to enable active participation of key stakeholders in the company’s operation and the development of knowledge based dynamic capabilities12.

2.4 CRS strategy managementCRS strategy management involves four main activities:a) CRS policies, strategies and performance/ risk indicators need to be developed as an integral part

of the overall corporate strategy to reflect the requirements and priorities of the key stakeholders. Strategies should clarify corporate responsibility positioning decisions in light of benchmarking information. Business strategy alignment should then be periodically validated;

b) governance structures, transparency standards and controls should be reviewed and adjusted as necessary to support the agreed CRS policies and strategies which may take a number of iterations to reach proper alignment;

c) a CRS capability development programme should be specified to support the implementation of the strategies in the context of the specified governance design;

11 Strategic CSR Learning and Knowledge Management Approach- CSRQuest White Paper SFB1B 29/12/200412 “An introduction to Knowledge oriented Strategy KoS and Strategic Knowledge Management Capabilities” kBOS white paper SKM1, 7/01/05, www.kbos.net©P. & Y. Katsoulakos 24 19th July 2006



http://www.kbos.net/


d) the overall strategy package as described above should be communicated across all stakeholder groups for feedback and to establish a shared vision.

2.5 Stakeholder engagementCompanies interact with their stakeholders every day but commonly do not understand them well and as a result do not even try to encourage their participation in shaping the future of the company. Stakeholder engagement is all about redressing this problem by providing strategies, processes and infrastructure to enable the company to: discover what really matters to the key stakeholders; involve them in providing feedback on corporate strategies and performance and in identifying what

and how things can be changed; monitor and manage stakeholder contributions and satisfaction levels.

Stakeholder relations managementStakeholder engagement develops and utilises relationships between a corporation and its stakeholders for mutual benefit. The stakeholder engagement process starts with identifying the company’s key stakeholders and then defining their characteristics (threat or collaboration potential, importance to company’s survival, urgency of response, etc.) which will determine the type of relation the company will build with them. Stakeholder relationships can be categorised as follows: Participative (stakeholders involvement in decision making); Collaborative (stakeholders involvement as reviewers, advisors); Informative (one or two way communications); Defending (intelligence response, negotiation).

A prerequisite of developing the type of relations outlined above is establishing good stakeholder understanding of: their concerns and priorities; their company perception; their level of satisfaction their intentions.





To establish insights into stakeholder requirements, perceptions and intentions transparency-enabling infrastructure and efficient communications are essential. Stakeholder understanding guides companies to analyse the relevance of different responsibility and sustainability issues and concerns in order to: assess opportunities and threats; identify existing or potential conflicts of interest decide action and monitor its impact.

Stakeholder participation Overlooking certain stakeholder expectations often means missed opportunities for building reputation or entering new markets and can set up problems for the company in terms of lost contracts, employee’s unrest and even litigation.

The question is how to respond in a balanced way to different voices from key stakeholders, some making conflicting or costly demands and communicating their requirements with differing intensity. An answer may be found in promoting a participative culture in the company.

The world has moved from a “trust me” culture to a “show me” culture and is now moving towards an “involve me” culture in which stakeholders could be working in partnership with organisations. By creating a participative culture for the company’s stakeholders the gap between stakeholder expectations and company responses can be reduced to an absolute minimum as the stakeholders themselves become part of the solution.

Stakeholders should be represented by specific roles in the organisational design through which they could participate in the company’s business and learning processes. It is not enough to give stakeholders the opportunities to be heard, because many will not have the capacity to participate effectively. Building the capacity of stakeholders to participate is one of the most important challenges for effective stakeholder engagement as has been learned from company experiences to date13. The companies learning processes and support systems should be designed specifically to address this issue.

A stakeholder engagement process modelThe stakeholder engagement process model shown in the following diagram includes the following activities: Identification of key stakeholders; Definition of stakeholders relations map and objectives; Definition of stakeholder related responsibility and sustainability key performance and risk

indicators; Definition of transparency policies and strategies; Definition of stakeholder participating roles and tasks; Integration of stakeholder roles/tasks in existing and new processes; Provision of role based information and training; Supervision of stakeholder interaction and implementation feedback; Monitoring of transparency and stakeholder company understanding/ perception;

13 Stakeholder Engagement: Why Expectation Gaps Occur, Michael Blowfield, The Center for Corporate Citizenship at Boston College, 01/10/2005 ©P. & Y. Katsoulakos 26 19th July 2006



Obtaining stakeholder feedback on responsibility and sustainability and monitoring stakeholder satisfaction;

Updating the relations map and indicators.

The critical success factor in stakeholder engagement is the effective participation of key stakeholders in the company’s learning processes. In the above diagram this is illustrated through three feedback loops: primary feedback (e.g. responsibility and sustainability concerns and priorities, level of satisfaction

and suggestions for change); transparency and communications related issues and suggestions for improvement; implementation related observations and improvement suggestions.

2.6 CRS implementation managementCRS implementation management is no different to managing the implementation of any other business strategy. The key to successful implementation is process management emphasising communications, training and quality control.

CRS implementation includes: the corporate responsibility and sustainability specific processes practices and projects;





capability development projects; integration of policies, strategies and practices in operational business processes.

Communications and trainingA key component of CRS implementation is the communications and training programme.

The CRS communications system should: enable stakeholders to participate in policies/strategies development and performance evaluation; enable employees to understand how CRS principles affect their day to day work and decision

making; establish the company’s CRS identity among customers, investors and other stakeholders; provide a pre-training function, across the organisation, addressing familiarisation and induction

requirements.

Training is essential, both for the CRS management team responsible for setting policy/strategy and supervising communications and implementation, as well as for the team assigned to the different CRS implementation activities. A training area often neglected is supporting stakeholders and particularly external stakeholders to participate in the tasks assigned to them. The training programme should be designed to support all the different roles involved in CRS related processes.

When developing a CRS training programme reference could be made to the CSR Competency Framework developed by the UK DTI to help managers integrate CSR into decision-making and operations.The Framework consists of a set of six core characteristics that describe the way all managers need to think about responsible business decision-making. understanding society: understanding the role of each player in society – government, business,

trade unions, non-governmental organisations and civil society; building capacity: participating in partnerships and creating strategic networks and alliances; questioning business as usual: challenging the way of doing things and being open to new ideas; stakeholder relations: identifying stakeholders, building relations, engaging in dialogue and

balancing demands; strategic view: taking a strategic view of the business environment; harnessing diversity: respecting diversity and adapting to different situations.

Quality managementQuality management principles should apply in CRS implementation in much the same way as in other process or project. Recent benchmarking reports have shown that mainstreaming lags behind policy and communication activities. CRS mainstreaming targets should therefore be properly monitored to identify required improvements. More generally, user feedback on the effectiveness of the CRS processes, communications and training programmes should be an integral part of CRS quality management.

2.7 Stakeholder oriented performance management

Approach





Corporate responsibility and sustainability performance management involves performance measurement, analysis, reporting and optimisation based on the indicators defined in the strategy. A stakeholder approach to performance measurement is advocated to facilitate a growing understanding of stakeholder issues and to obtain stakeholder feedback on the strategic choices the company makes.

The broad responsibility and sustainability performance measurement categories have already been defined. Detailed measurements are commonly based on process measurements or benchmarking criteria. Process measurements relate directly to the company’s specific CRS processes and projects. Benchmarking tends to involve an external perspective, often comparing performance with that of competitors or other ‘best practitioners’ of business processes.

Indicators and measurement frameworksCorporate responsibility related indicators for benchmarking purposes have been developed and used in the last few years primarily by SRI indexes and reporting standards such as the Global Reporting Initiative GRI. Such indicators provide baseline material for companies to develop their own evaluation criteria.

Companies could also adopt or modify one of the existing measurement frameworks. A popular one is the balanced scorecard focusing on financials (shareholders), customers, internal processes, plus innovation and learning, modified so that stakeholders replace customers.

Neely and Adams (2002)14 use ‘the stakeholder satisfaction perspective’ in their five-faceted ‘performance prism’ linking strategy process and capability to stakeholder contribution and satisfaction.The key message here is that all organisations require certain things of their stakeholders and all organisations are responsible for delivering certain things to all of their stakeholders. According to Neely and Adams, the following five perspectives and associated key questions can be used to guide the design of measurement systems: Stakeholder Satisfaction – who are the key stakeholders and what do they want and need? Strategies – what strategies do we have to put in place to satisfy the wants and needs of these key

stakeholders? Processes – what critical processes do we require if we are to execute these strategies? Capabilities – what capabilities do we need to operate and enhance these processes? Stakeholder Contribution – what contributions do we require from our stakeholders if we are to

maintain and develop these capabilities?

A matrix of key stakeholder needs and contributions is shown in the following table.

14 Neely, A.; Adams, C.; Kennerley, M. (2002) The Performance Prism: The Scorecard for Measuring and Managing Business Success. London: Financial Times Prentice Hall.©P. & Y. Katsoulakos 29 19th July 2006



Another interesting approach focusing on the quality of stakeholder relationships measured using the concept of social capital has been proposed by CIM 15. This approach is closely related to the stakeholder approach to strategic management.

15Svendsen, A.C., R.G. Boutilier, R.M. Abbott & D. Wheeler (2002), Measuring the Business Value of Stakeholder Relationships: Part One, Vancouver: Centre for Innovation in Management©P. & Y. Katsoulakos 30 19th July 2006



A stakeholder oriented performance management processA stakeholder oriented performance management process is shown in the following diagram highlighting the importance of measuring both stakeholder contribution and satisfaction and including feedback streams associated with strategies, capabilities, implementation and contracts.

The measurement system, which is the heart of a company's control system, must: help evaluate whether the company is getting expected contributions from employees and suppliers

and returns from customers; help evaluate whether the company is giving each stakeholder group what it needs to continue to

contribute at an equal or improved manner; guide the design, implementation and improvement of processes that contribute to the company’s

CRS strategies/objectives; support the evaluation and refinement of CRS strategies; help evaluate the company's implicit and explicit contracts with its stakeholders.

Analysis and reportingAlthough companies are under few legal obligations to publish social performance data, increasingly many are doing so as part of a pro-active strategy to demonstrate their commitment to CRS principles. The most common method for doing this is through one or more ‘social reports’ covering a variety of issues known to be of concern to stakeholders.




Performance data shows the company's level of performance in each area of CRS concern. Comparing that performance against internal or external benchmarks provides the basis for judgements about how well the company is doing and how its performance is changing over time.

Benchmarks may be internal or external to the company, local or international in origin. They may serve to compare performance with that of other similar companies or to gauge proximity to best practices or to support technical optimisation. Increasingly, companies with global brands are moving to international benchmarks - such as best international practice - irrespective of lower legislative or other requirements in any given local market.

In many cases absolute scores or measures may need 'normalising' or standardising to allow valid comparisons to be made over time or between different locations. Hence, discharges of potential pollutants are usually expressed in relation to the total volume of discharges made in a given period and product returns are expressed as a percentage of total physical quantities produced. In many areas of concern - particularly those related to the natural and work environment - there are already commonly accepted measures.

Placing social performance data on public record raises issues of verification. Whereas financial data is subjected to the rigors of the audit process there is nothing comparable for social and environmental data. Over the last few years several verification approaches have been suggested but cost remains the key issue. Use of a 'Stakeholder Panel' has been one way of giving stakeholder representatives the opportunity to comment on report contents and veracity.

OptimisationThe emphasis on stable, quantifiable measures (with appropriate normalisation) is central to CRS performance management and should augment measuring stakeholder perceptions. Stakeholder opinion surveys can be of great value in ranking stakeholder concerns or establishing the factors contributing to them but cannot provide the only input for sustainability performance optimisation.Sustainability performance management should turn “data” into information and knowledge that is accurate, timely, relevant and usable in planning and optimisation activities.

The key to successful optimisation is establishing an understanding of the company’s CRS strategy and then define a clear focus for the sustainability performance optimisation exercise. This should take into account national sustainability strategies, sector characteristics including the regulatory regime, the social model and organisational design variables. A basic optimisation process is shown in the following diagram.

The Optimisation Context will determine the type of optimisation techniques that should be used. These techniques include statistical analysis of historical data, system dynamics simulation, optimisation ©P. & Y. Katsoulakos 32 19th July 2006



algorithms and process optimisation. Using the chosen techniques a number of optimisation options will be produced and then the operating solution for the selected option will need to be constructed and deployed. It is now fairly well accepted that net present value analysis can be extended using real options techniques to evaluate potential investments. Real options approach has been embraced by strategic managers who recognise the importance of managerial flexibility in adapting strategy to a changing market environment. Such approaches are well suited to sustainability performance optimisation plans.




3 Corporate social and sustainability responsibility core practicesCorporate responsibility and sustainability practices are subdivided into the following areas: Economic responsibility and Governance Human Rights and Labour Standards Health promotion and communities support Environmental responsibility

3.1 Economic responsibility and governanceThe corporate responsibility and sustainability economics related practices address primarily issues associated with impact of products, ethical trading, governance transparency and support for fair globalisation as defined in the following table.

Practice areas Practices

Safety and impact of products

Production and distribution integrity;Product safety;Packaging safety;Optimisation of positive health spin-offs and minimisation of the negative effects of products and services;Addressing special consumers needs (e.g. young and elderly, disabled).

Issues concerning the consumers

Price/value and quality of product;Informative and honest labelling;Honest advertising;Responsible marketing and selling practices, particularly to children;Activities to safeguard consumers.

Responsible suppliers management

Equal opportunities concerning suppliers;Supplier diversity management;Working with sub-contractors, agents and suppliers to ensure that they also adopt responsible business policies/practices;Supply chain responsibility on human rights;Responsible payments of bills;Technology and knowledge transfer to suppliers; Co-operation with public bodies on supplier diversity.

Personal data privacy

Policy and practices on supplier and consumer’s privacy;Conformance to privacy standards;Practice reviews and complaints procedures.

Ethical standards

Business ethics policies and supervision for price fixing, unfair competition, money laundering, tax fraud, bribes.

Support for Fair Globalisation

Adherence to Fair Globalisation principles;Active participation in the promotion of fair globalisation.

Corporate Governance

Compliance to applicable regulations;Transparency (accounting standards, financial disclosure);Corporate accountability; Safeguarding interests of stakeholders including minority and small shareholders;Guarding against conflicts of interest (audit , nomination, remuneration board committees);Risk management.





3.2 Human rights and labour standardsThe focus is on creating workplaces free from discrimination, promoting learning and professional conduct and a balance between work and other aspects of life. Responsible multinational companies are expected to trade world-wide respecting human rights and social justice and facilitating the elimination of all forms of forced or child labour. Employment conditions, based on internationally agreed International Labour Organisation ILO standards, should be adhered to and checked throughout the supply chain. The principal document relating to human rights is the Universal Declaration of Human Rights, adopted by the United Nations General Assembly on 10 December 1948.


Employees equal opportunities

Equal opportunities for women, minorities and physically disabled;Written non-discrimination policy covering background, religion, sexual orientation;Policies and procedures on harassment;Equal opportunities management review.

Training and professional development

Corporate training addressing all employee levels with quantitative targets; Programmes to support the continued employability of employees and to manage career endings;Courses available for life long learning, new skills, new technologies and professional development;Policy on educational leave and postgraduate courses;Leadership development;training and communication programmes on corporate responsibility and sustainability; Training schemes for people with special needs.

Good internal relations

Upholding the freedom of association and the effective recognition of the right to collective bargaining;Regular and full company information to employees;Providing open lines of communication;Supporting employees to balance work, family & personal commitments;Transparency on issues affecting security of employment, and work conditions; Good cooperation with unions/employee associations and employees to manage restructuring or crises;Redundancy policies and support for job search and career counselling.

Employee remuneration

Fair appraisal and promotions;Profit sharing schemes (bonus / share options) excluding sales commission;Additional insurance/medical care /beyond the executive level;Company pension schemes;Disability policies;Relocation support;Overtime and abnormal hour’s compensation;Other/additional benefits.

Safeguarding against forced or child labour

Safeguarding against all forms of forced or child labour;Supporting when possible initiatives /actions for the elimination of forced labour.

3.3 Health promotion and communities support






The starting point for the business sector is action to promote positive health and safety in the workplace and to optimise the positive health spin-offs and reduce the negative impacts of their products and services. Additionally, pharmaceutical companies and large multinationals are expected to contribute actively to combat global health challenges.

Companies are expected to participate in the communities in which they operate by responding to critical social issues such as regional development, education and health and taking care to maximise the impact of their donated money, time, products, services, influence, knowledge and other resources.


Health and safety in the workplace

Promotion of positive health and safety at the workplace (information dissemination, seminars, training);Practice on recording and notification of Occupational Accidents and Diseases;Availability of skilled health and safety officers;Guidelines for dealing with work stress and lifestyle issues;Availability of health support facilities;Special health promotion initiatives.

Products health impact optimisation

Products health impact management;Product health related innovation.

Participating in the Global Partnership on Health

Support access to medicines, and basic health care particularly in the less developed world; Development of basic infrastructure for public health including sustainable access to safe drinking water and sanitation in poorer countries;Reduction of child mortality;Improvement for maternal health;Combating HIV/AIDS, malaria and other diseases.

Support for health promoting community initiatives

Encouragement of employees to engage in voluntary action;Collaboration with local communities, and health organisations for community health related issues or emergencies.

Support for special community educational needs

Support strategies for youth training;Supporting training centres for long term unemployed and development of new skills;Supporting schools and education of people with special needs.

Support for local regeneration

Support for local regeneration schemes;Support for local business networking.

Sponsoring Sponsoring (sports, art etc);Philanthropy.

Support for human disaster relief

Supporting humanitarian relief operations both in the wake of 'natural' disasters or during or after times of conflict;Support to reduce the vulnerability of communities.

3.4 Environmental responsibilityInterest in corporate environmental risk management issues is at an all time high across Europe and North America due to pressure by shareholders, citizens and new regulations and standards (in Europe: Environmental Liability Directive 2004/35/EC and the European Union Emissions Trading Scheme). At the ©P. & Y. Katsoulakos 36 19th July 2006




start of 2005, there were more than 400 regulations in development at Federal level in the United States and the European Union is currently drafting rules concerning air quality, chemicals, groundwater, environmental liabilities and waste.

Environmental Risk Management is concerned with the protection of living and non-living natural systems, including ecosystems, land, air and water in case of emergencies and high environmental impact crisis produced by industrial accidents. This implies the prevention and the mitigation of high risk events through the use of monitoring systems and of environmental emergencies procedures and plans.


Proactive support for environmental issues

On-going programmes of staff training in environment;Working with local authorities to build capacity and enhance organisational ability to develop integrated approaches to environmental management;Research on renewable energy products and minimisation of greenhouse gas (GHG) emissions from fossil fuels.

Environmental risk management

Prevention and mitigation (Environmental risk/hazard prediction and modelling, risk assessment, prevention actions); Risk monitoring and alertness;Environmental disaster responsiveness (scenarios development, emergency planning maps, communications, training);Sustainable disaster mitigation.

EnvironmentPerformance

Efficient use of materials; Energy management;Water impact management;Management of biodiversity;Waste / emissions / effluents minimisation;Waste management;Minimization of negative effects of products on environment.



Documents

Corporate