Corporate Social Responsibility and Sustainability

15 CorporateSocialResponsibiUtyandSustainabiUty..........................................................................................................................................................

Inwhich we consider

new expectationsin the.governanceof organizations

corporatesocial responsibility:strategiesand policies

corporatesocial responsibility reporting

sustainability reporting

balancingcorporateresponsibilities

NewExpectationsin theGovernanceofOrganizations

Theoriginalcorporategovernancecodes,datingfromtheearly1990s,werevoluntary.Atthetimetheywerederidedbysomecompanychairmenasbeingno morethanexpen-sive,box-tickingexercises.Butsincethenthreesignificantchangeshavetakenplace.Firstly,corporategovernancecompliancehasincreasinglybecomemandatory,enshrinedinregu-lationor in somecaseslaw.Complaintsnowtendtobeaboutthecostof compliancenotabouttheneedforcorporategovernancecodesoSecondly,riskanalysisandriskmanage-menthavebecomeanintegralpartofthecorporategovernanceprocess.Thirdlyandmostrecently,corporatesocialresponsibilityandsustainabilityhavebeenaddedtothecorpor-ategovernanceportfolio.

Questioningthesocietallegitimacyof corporateentitieshasalonghistory.In theori-ginalmid-19thcenturyconceptofthecompany,if theliabilityof theownersforthedebtsoftheentitywereto belimited,societydemandedthatthecompany'sactivitiesshouldbestrictlyprescribed.Companiescouldonlycarryoutthosefunctionsdescribedinthemem-orandumpublishedwhentheywereincorporated.In effect,societygavetheentitya li-cencetooperateprovidedthatit limiteditsactivitiestoaspecificsetof activities.

Subsequently,lawyersbegantodrafttheconstitutionaldocuments,typicallythememo-randumofassociation,sowidelythattheactivitiesofcompanieswerenolongerbounded.Sothebehaviourofcorporateentitieshashadtobeconstrainedbylaw.The1884UK Com-paniesActhadonlyafewpages:thelatest2006UK CompaniesAct wasthelongestpieceoflegislationBritainhadeverproduced.Aroundtheworldlawstocontrolmonopoliesandmarkets,employeerelations,customerprotection,healthandsafety,environmentalprotec-tion,andmuchmorearenowusedtoregulateandrestraincorporateactivities.

350 PRACTICES

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This raisesthevitalquestion,neatlyposedbyMilton Friedman:(doesa businesshaveresponsibilities?'Hisviewwasthattheonlylegitimatepurposeforacompanywastocreatewealth,pursuingtheirbusinesseffectivelyforthebenefitof theircustomers,whilstprovid-ingaprofitablerewardtotheirinvestors.Itwastheroleofthestate,hebelieved,toprovidethelegalframeworkthatregulatedcompanies'behaviourin relationto therestof thecommunity.

Aswesawinthediscussionofstakeholderphilosophiesin chapter9,thedebatecontin-uesaboutcompanies'responsibilitiestoshareholdersandotherstakeholders.Ononesidearethosewhoargue,likeFriedman,thata companyhasoneandonlyoneobjective:tomakelongtermsustainableprofitsbysatisfyingcustomersfor thebenefitof itsowners,whilstactingwithinthelaw.If societywishesto limitacompany'ssingle-mindedpursuitof thisgoal,forexamplebyconstrainingmonopolies,regulatingemployment,orprevent-ingpollution,it mustpassappropriatelaws.Ontheothersidearethosewhobelievethatbecauseacompanycanand--doesaffecttheinterestsandeventhelivesofpeople,itshouldbeaccountable,andsomesayresponsible,tosocietalinterestsoverandabovethoseoftheownersandbeyondthespecificlimitsof thelaw.

Carroll(1979)1attemptedtoanswerFriedman'squestionbysuggestingthatcorporateresponsibilityhadfourlevels:

Economicresponsibility-firstandforemostthesocialresponsibilitytobeprofitorientatedandmarketdriven

Legalresponsibility-toadheretosociety'slawsandregulationsasthepriceforsociety'slicencetooperate

Ethicalresponsibilities-tohonoursociety'swidersocialnormsandexpectationsofbehaviouroverandabovethelawin linewiththelocalculture

Discretionary(orphilanthropi)responsibilities-toundertakevoluntaryactivitiesandexpenditureswhichexceedsociety'sminimumexpectations

Aswewillseeinthischapter,manycompaniesintheeconomicallyadvancedworldnowacceptthattheirresponsibilitiesgobeyondthegenerationof wealthwhilststayingwithinthelawsof thestatesinwhichtheyoperate.Suchthinkingisnowwidelycalledcorporatesocialresponsibility(CSR)andrecognizedaspartofcompanies'corporategovernancere-sponsibilities.EveninemergingeconomiessuchasChina,theimportanceofCSRisrecog-nized.The10thNationalCongressoftheChinesePeople'sPoliticalConsultativeConfer-encein 20052recognized.thatbusinessenterpriseswerethefoundationfor buildingaharmonioussociety.Enterprisesshouldberequiredtodothreethings,itwasargued:takeascientificandrationalattitudetowardsdevelopment,protectandrespectemployeerightsandbenefits,andundertakemoresocialresponsibilities.

A distinctionneedstobedrawnbetweenCSR,businessethis,andcorporatephilan-thropy.CSR raisesa strategicconcernaboutthenatureandpurposeof companies.Sociallyresponsiblecompaniesrecognizea responsibilityfor theirimpacton all stake-holders,communities,andtheenvironment,balancingtheirinterestswiththeneedtomakeaprofittogrowandsatisfytheirshareholders.CSRgoestotheheartof corporate

Carroll (1979)AcademyofManagementReview.2Seechapter8 for moreon Chinesestategovernance.

CORPORATE SOCIAL RESPONSIBILlTY AND SUSTAINABILlTY 351

governance,aswesawin chapter9whendiscussingstakeholderphilosophyor,assomecallit,stakeholdertheory.

Businessethics,ontheotherhand,concernanorganization'sbehaviourin societyandtheethicalconductof thoseintheorganization.Somecompaniesdeveloppoliciesfortheethicalconductexpectedof employeesandpublishcodesof ethics.Ethicalconcernsraiseimportantphilosophical,ideological,andmoralissues,whicharerootedin social,reli-gious,andculturalcontexts.AlthoughCSRpracticesinevitablyhaveanethicalunderpin-ning,thestudyofethicsisnotthefocusofthisbook.

Corporatephilanthropyinvolvescharitablegivingbyacompanytosupportcommuni-tiesthatit isconcernedabout,inmoneyorservicessuchasemployees'time.A sociallyre-sponsiblecompanymayindudephilanthropyasapartof itsoverallCSRprogramme.ButCSRinvolvesawiderperspectivethancorporatephilanthropy.

Box 1.5.1.A Comment on CSR from the British Chancellor of the Exchequer(Who later became Britain's Prime Minister)

Today,corporatesocial responsibilitygoes far beyondthe old philanthropyofthepast-donatingmoneytogoodcausesattheendoftheyear-and is insteadan all year roundresponsibilitythat companiesacceptfor the environmentaroundthem,tothebestworkingpractices,for theirengagementin the localcommunities,andfor their recognitionthatbrandnamesdependnotonlyonquality,price,anduniqueness,butonhow,cumulatively,theyinteractwiththecompaniesworkforce,community,andenvironment.Now,weneedto movefor-wardtowardsa challengingmeasureof corporateresponsibility,wherewejudgeresultsnotjust byinputbutbyits outcomes:thedifferencewemaketotheworldinwhichwe live,andthecontributionwemaketo povertyreduction.

(TheRightHonourableGordonBrown2006)

The notion that companies havearesponsibilitythatgoesbeyond.adutytotheirshare-holdersis not,however,universallyaccepted.Reich,3who waspreviouslyaCSR advocate,arguedthatconsumerstodayhaveaworld of choiceandbusinessesfacemorecompetitionthaneverbefore.In pursuit of corporateperformanceCEO's incentivesbecomealignedwith shareholders'interestsasthey'slashpayrolls,outsourceabroad,and drain our mainstreetsofshops'.Reichbelievesthat,in fact,bettercorporategovernancemakescompanieslesslikelytobesociallyresponsible,condudingthatif stateswanttoavoidadversesocialconsequencestheyhavetopasslawstostopthem:

CorporateSocialResponsibility:StrategiesandPolicies

In recentyears,alothasbeenwrittenaboutcorporatesocialresponsibility(CSR).Aroundtheworld,governments,communityinterestgroups,andindividualshavebeencallingfor

3Reich,RobertB. (2006)Supercapitalism:TheTransformationofBusiness,DemocracyandEverydayLife.London:Borzoi Books/RandomHouse.

......

352 PRACTICES

businessto actin sociallyresponsibleways.Theadverseeconomiceffectsof companiestransgressingacceptablecorporatebehaviourcanbehigh,notonlyin directeconomiccosts(damages,restitution,productrecalls,fines,etc.)butinreputation.Aswesawearlier,reputationalriskshouldbetakenseriouslyineveryriskanalysis.

In thischapterwenotethegrowingcallsforbalanced,objective,andtransparentreport-ingoncompanies'CSRandecologicalimpactsandincreasingsocietalpressuresforcom-paniestoreportontheeffectstheyhaveonthesocietiesinwhichtheyoperate.Wealsoseethatsomecompaniesbelievethatresponsiblebusinessisgoodbusinessin thelongterm,positivelyaffectingcustomerrelations,employeeattitudes,andultimatelythesharepriceandcostofcapital.

ForthefirsttimeUK companylaw,theCompaniesAct2006,specificallyincludedCSRresponsibilitieswithintheformaldutiesofcompanydirectors:

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A directorof acompanyml1stactin thewayheconsiders,in goodfaith,wouldbemostlikelytopromotethesuccessofthecompanyforthebenefitof itsmembersasawhole,andindoingsohaveregardto:

(a) thelikelyconsequencesofanydecisioninthelongterm

(b) theinterestsof thecompany'semployees

(c) theneedtofosterthecompany'sbusinessrelationswithsuppliers,customersandothers

(d) theimpactof thecompany'soperationsonthecommunityandtheenvironment

(e) thedesirabilityof thecompanymaintaininga reputationfor highstandardsof businessconduct,and

(f) theneedtoactfairlyasbetweenmembersof thecompany.,'.

I ThepreviouscommonlawintheUK requireddirectorstoactin thebestinterestsofthecompany,whicheffectivelymeantin thelongterminterestof theshareholders,typicallymaximizingshareholdervalue.Thenewlawspeltoutastatutorydutyto recognizetheeffectof theirdecisionsonawiderpubliCo

OtherexamplesofcallsforCSRreportsincludetheEuropeanUnion'sdemandforspe-cificCSRpoliciesfromcompaniestenderingforcontracts(2005),theUK DepartmentoftheEnvironment,FoodandRuralAffairs(DEFRA)requirementforoccupationalpensionfundsto 'reportwhetherenvironmental,socialandethicalcriteriaaretakenintoaccountintheirinvestmentstrategy'(2001),andtheAustralianStockExchangelistingrulethatre-quirescompaniestoreporttheirperformanceagainstthecriteriaof environmentallegis-lation(1998).

Investigativemediaincreasinglyreportcasesof firmstransgressingacceptedbehaviourin,forexample,theemploymentofchildreninmanufacturingin thirdworldcompanies,theallegedill treatmentofanimalsinpharmaceuticalproducttesting,andpollutionintheoil drillingandtransportindustries,eventhoughsuchpracticesmaybeperfectlylegalintheplaceswheretheyoccur.

Tobeeffective,acompany'sCSReffortsneedtobeunderpinnedbyaboardlevelCSRpol-icy.Suchapolicyshouldincludeaclearstatementaboutthecompany'svalues,whatitstandsfor,andhowit engageswithitsshareholdersandotherstakeholders,includingitsemploy-ees,customers,andsuppliers,thecommunitiesinwhichitoperates,andtheworldatlarge.

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BoardapprovalofCSRpolicieshasledmanycompaniestopublishamissionstatementthatseeksto enshrinethatcompany'svaluesandpurpose,aswehaveseenpreviously.Madeavailableto allemployees,customers,andcommunities,suchmissionstatementscanbevaluablein focusingacompany'sCSRfocus.Of course,amissionstatement,with-outthebackingofclearboardpolicycommitment,islikelytoproveatbestafutilepublicrelationsexerciseandatworstsanctimoniousdrivel.

But with commitmentat boardlevel,a firm'sCSR valuesarelikelyto influencemanagementdecisions,affectemployeeattitudes,andimprovecustomerrelations.CSRactivitiesshouldpenetrateeverylevelandall aspectsof afirm'sactivities.A successfulCSRpolicywillbebuiltintoinductionprogrammesatdirector,manager,andemployeelevels,aswellasbeingpromotedasmanagementandorganizationaldevelopmentactivi-tiesoA clearCSRpolicycanalsoinfluenceinvestmentdecisionsbypotentialsharehold-erslookingfor sociallyresponsible,ethical;or environmentallyfriendlyenterprisesinwhichtoinvest. -.

A CSRpolicyis,basically,asummaryof thefirm'sattitudestotheimpactit hason itsstakeholders,thecommunities,andtheenvironmentinwhichitoperates.Obviously,everycompanyisdifferentandmustdevelopitsownCSRpolicyandprogrammesinthecontextof itsowncorporategovernancemethods,includingitscorporatestrategiesandpolicies,anditsmanagementsupervisionandaccountabilitysystems.

Thefollowingexamplehasbeenadaptedfromamanufacturingcompany'sCSRhand-book:

Case Study 1.5.1.A ManufacturingCompany'sCSR Policy

In additionto the implications for continuing economic success, all company strat-egies, polices, and managementdecisions should take account of the following longterm effects:

1. The firm's impact on all its stakeholders including:

customers of the end product or service

agents, distributors, and others in the down-streamsupply chain

original suppliers and others in the up-stream supply chain

other creditors

bankers and non-equitysources of finance

employees including managers

self-employedcontractors to the company

2. Thefirm'simpactonall thecommunitiesin whichitoperates:

Considerlocal,regionalandnationalimpactsincluding:

- economiceffects

- sociallyresponsibleactivities

- philanthropicefforts

354 PRACTlCES

3. Thefirm'simpactontheenvironment:

Considerall therelevantcommunities,regionsandcountriesaffectedbyourmanufacturinganddistributionchain,including:

- theeffectof productionactivitiessuchas

energyusedepletionof resourcesexploitationof labourpollution

- thecompany'sproductsincluding

theeffectof the productin useenergyusehealthorotherrisks .pollution

- theenddisposalof theproduct

energyusepollution

Each of these broad policystatementsis furtheramplifiedin the handbook.Forexample,thesectiononthefirm's impactonthecommunitiesinwhichitoperatesisshownbelow.

Amplificatonof theAboveManufacturngCompany'sCSRPolicy

Underthe section(2) 'Thefirm'simpacton all thecommunitiesin whichit operates(Jocal,regionalandnational)'andits sub-section'sociallyresponsibleactivities'con-siderthefollowingimpactsbythefirm:

thecontributionsof facilities,staff timeto localandotherorganizations

- educationalandacademiccontributions

- supportfor localandotheracademicinstitutions

- contributionsto researchandsimilaractivities

aestheticandarts contributions

- expenditureonbuildingandlandscapedesign

- sponsorshipof arts, crafts,andsimilaractivities

sports andleisurecontributions

- sponsorshipandcontributionsto localandotheractivities

- povertyreduction

- directcash andindirectsupport(staffsecondment,etc.)

Underthe sub-section'philanthropicefforts, considerthe followingimpactsbythe firm:

.contributions to charities and other causes (includingcash, use of facilities,staff time,andindirectsupport)

employeegivingto charitiesandothercauses


directorandstaff serviceoncharitableandothernon-profitboardsandmanagementcommittees

DiscussionQuestion1. Evaluatethecompany'sCSR policy.

Is thereanythingmissing?

Whatissues mightariseintheapplicationof thepolicy?

Doesthe policyprovidea soundbasisfor a CSR reportforthecompany?

To encouragecommitmenttoCSR practicestheBritish GovernmenthascreatedaCSRcompetencyframework;aflexibletool,whichisofferedasa'wayofthinkingfor companiesof all sizes(seewebsiteslistattheendofthechapter).Theframeworkhassixcorecharac-teristicswith fivelevelsof attainmentfor eachone.

The corecharacteristicsare:

Understandingsociety

Aknowledgeofhow thebusinessoperatesin thebroadersocietalcontextandaknowl-edgeoftheimpactthatthebusinesshasonsociety;plusarecognitionthatthebusinessisanimportantplayerinsociety,seekingtomakethatimpactaspositiveaspossible

Buildingcapacity

- Workingwithotherstobuildthecapabilitytomanagethebusinesseffectively,help-ingsuppliersandemployeesto understandyourenvironmentandapplysocialandenvironmentalconcernsin theirday-to-dayroles

Questioning'businessasusual'

Constantlyquestioningyourbusinessin relationto a moresustainablefutureandbeingopentoimprovingpeople'squalityoflifeandtheenvironment,actingasanad-vocateengagingwithbodiesoutsidethebusinesswhosharethisconcernforthefuture

Stakeholderrelations

Recognizingthatstakeholdersincludeallthosewhohaveanimpacton,orareim-pactedby,yourbusiness,understandingtheopportunitiesandriskstheypresentandworkingwiththemthroughconsultation,takingtheirviewsintoaccount

Strategicview

EnsuringthatsocialandenvironmentalconcernsareincludedintheoverallbusinessstrategysothatCSRbecomes'businessasusual',withleadershipcomingfromthetopandresultingineveryoneinthebusinesshavinganawarenessofthesocialandenvir-onmentalimpactsintheirday-to-dayroles

Harnessingdiversity

Recognizingthatpeopledifferandharnessingthisdiversity,reflectedin fair andtransparentemployrnentpractices,promotingthehealth,wellbeing,andviewsofstaffwitheveryonein thebusinessfeelingvalued.

356 PRACTICES

Thefivelevelsofattainmentare:

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Awareness

- Thebroadapplicationof thecoreCSRcharacteristicsandhowtheymightimpingeonbusinessdecisions

Understanding

- A basicknowledgeof someof theissues,with thecompetenceto applythemtospecificactivities

Application- Theabilitytosupplementthisbasicknowledgeof theissueswiththecompetenceto

applyit tospecificactivities

Integration

- An in-depthunderstandingoftheissuesandanexpertisein embeddingCSRintothebusinessdecisionmakingprocess

Leadership

- theabilitytohelpmanagersacrosstheorganizationinawaythatfullyintegratesCSRinthedecisionmakingprocess.

Overall,theintentionof theCSRframeworkisto changeemployees'mindsetsandtopromoteanappropriateCSRstrategythroughouttheorganizationandbetweenthecom-panyanditsstakeholders.IntroducingsuchaclimateofCSRthroughoutanorganizationneedstobepartof anongoingperformanceassessmentof bothorganizationalunitsandindividualsandshouldnotbeallowedtobecomeaform-fillingexercise.

An organization'sresponsetoitssocialandenvironmentalimpacts,recognizedthroughCSRawareness,canprovideacost-effectiveyetcomprehensivewaytomanagesocialandenvironmentalriskacrosstheorganization.ContrasttheCSRpolicieswithindifferentpartsof thesameorganizationintheExxoncasesthatfollow.

1;;1

Case Study 15.2 ExxonEuropeCSR Policy

Wetakeour responsibilitiesveryseriously-for ouremployees,shareholders,customers,communities,theenvironmentandsocietyat large.

We stronglybelievethatthewaywe achieveresultsis as importantas theresultsthemselves.Therefore,weareworkinghardto embedCSR intothewaywedo business.

WehaveintegratedCSR policiesandpracticesintoourbusiness,whichhelpustoensurethatwemeetstandardsof integrity,safety,health,environmentandsocialresponsibilitydayinanddayoutandacrossourworldwideoperations.Webelievethatthisapproachis essentialto achievingsuperiorbusinessresults.

Our focus is on helpingEuropemeetenergydemandin an economically,sociallyandenvironmentallyresponsiblemanner.Butwecannotbeallthingstoall people.Wemustbalancetheneedsof a widevarietyof stakeholders.Todoso sustainablyis whatthe policies,actionsand performanceimprovementsbehindCSR areall about.

(Seewww.exxonmobil.comjEurope-EnglishjCitizenjEu_VP_responsibility.asp)

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DiscussionQuestions

1. Exxonrecognizesthatwe 'cannotbea/l thingstoallpeople'.Howwouldyourecommendthatthis dilemmaberesolved?

2. Whatchangeswouldyoumaketo the ExxonCSR statement?

However,despitetheclearcommitmenttoCSRintheExxonEuropepolicystatement,theirholdingcompanyin theUnitedStatesfaceda CSRchallengeattheir2008annualshareholdersmeeting,asdescribedbelow:

Box 1.5.2 CSR Resisted in Exxon

John D. Rockefellerfoundedthe StandardOil Corporation,which becameExxonMobil,theworld'slargestpubliclyownedenergycompany.Atthe2008 AGMsomeofhis descendantsbroughtshareholdermotionscallingforthecompanyto curbgreen-housegasemissions,to increaserenewableenergyresearch,andtodevelopsourcesof alternativefue!.

ThreeresolutionsaskedExxontostudythe impactofglobalwarmingon poorcoun-tries, reducecompanyemissionsof greenhousegases, and do moreresearchonrenewableenergysources like wind turbinesand solar panels. Neva RockefellerGoodwin,an economistand great-granddaughterof Rockefeller,told shareholders:'theseincreasedconcentrationsofC02in theatmospherewillcauseweatherdisastersthatwillworkagainsteveryone'sbesthopeforrobustdevelopmentin emergingcoun-

.tries,whilea/soincreasingthevulnerabi/ityof thepoorin therichcountries.It willa/soimpacttheglobaleconomy.'TheproposalswereopposedbyExxonMobil'sboard.

Thefamilyalsosupportedresolutionscallingforthecompanyto establishaninde-pendentchairman,separatingthe rolefromthatof the currentChairmanandChiefExecutiveRexTillerson.Shell and BP, theynoted,had alreadyseparatedthe posi-tions.Themotionto splitthe roles,whichhadbeenraisedfor the last sevenyears'shareholdermeetings,was supportedby a significantnumberof shareholders.Butthefinalpolishowedonly39.5 percentof theshareswerevotedin favour.

Commentatorssuggestedthat the US$40 billionprofitreportedbythe companylastyearmayhaveinfluencedthe resto'Thepastyearwasan outstandingyearandarecordforourcorporationbynearlyeverymeasure',Tillersonsaid, 'millionsofpeoplehavebenefitedfinanciallyby holdingExxonMobilshareseitherdirectlyor indirectlythroughtheirpension,insurance,andmutualfunds',headded.

Mr Tillersonalso addedthathethoughtExxonhadto keepfocusedon its missionof developingmoreoil andgas reserves,andthatoil andgas wouldremainthe pri-maryfuelsourcefordecadestocome.Someshareholdersdisagreedarguingthatthecompany'semphasison developingoil and gas as energysourcesthreatenedtheglobalenvironmentand ultimatelythe company'sfinancialhealth.Oneshareholdersuggestedthatthecompanywas acting'/ikea dinosaurbynotadoptingtoa changingenvironment'.Another,aDominicannunfromNewJersey,said 'we'refacedwithapro-found moraland business cha/lenge'.They were countered byother shareholders whodefendedthe managementas agreatenginefor profits.

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358 PRACTICES

CorporateSocial Responsibility Reporting

CSR reporting hasbecome an integral and important aspectof corporategovernancepracticesin somecompanies.ThesecompaniestypicallyreporttheirCSRpoliciesandtheirperformanceon employeewelfare,customerrelations,environment,ethicalstand-ards,andsustainabilityin specificreportsto shareholders,stakeholders,regulators,themedia,andotherinterestgroups.In mostcasessuchinformationappearsbothaspub-lishedreportsandonthecompany'swebsite.

Thethreecasestudiesthatfollowareextractsfromthreequitedifferentcompanies'cor-porategovernanceandCSRreports.Largelyself-explanatory,theyillustrateandenhancethematerialin thischapter.

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Case Study 15.3 HSBC Holdings Pie: Corporate Responsibility Report

HSBC calls itself the world's local bank. With 312,000 employees in over 10,000 of-fices, it is listed on five stock exchanges and has 200,000 shareholders spread over100 countries.

The following extract is taken from the corporate responsibility section of theirannual reporto

Managing for Long term Success

Howa business like HSBC respondsto the challengeof balancingthe

needs of people, planetand profit is partof our corporateresponsibility

strategy. .. we want HSBCto be one ofthe world's leadingbrands forcorporateresponsibility.

,,1

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iiStephen Green,Group Chairman

At HSBC, we believe that corporate responsibility is critical to our long-termbusiness success. In order to deliver enduring returns to our shareholders, weneed to build lasting relationships with our customers that are based on the

highest standards of personal integrity,transparency and fair dealing in all ourbusiness activities. This is the philosophy that underpins our approach to run-ning our business responsibly.

We are committedto treating all present and future stakeholders in an openand transparent way.This commitmentto openness is vital, whether in relation

to the products and services we provideto our 125 millioncustomers, inthe waywe manage our global workforce of 312,000 employees, or in the assessment

of sustainability risks in our lendingand investmentactivities, which rangefromcommercial banking loans to multi-milliondollar infrastructure projects.

Companies like ours must also share responsibility for addressing some of

the formidable challenges currentlyfacing societies across the globe, includingthe impactof climate change. We also providesupport for educational and envir-

onmental projects worldwide through our charitable donations which totalledUS$86.3 million in 2006.

Managing forsustainable growth

We aspire to be one ofthe world's leadingbrands in corporate responsibility.An

example of our strategyhere is microfinance, which demonstrates the growing

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alignmentbetweenbusinessandcommunityinvestment.Ournewmicrofinancestrategyis basedoncommercialviabilityalbeitwithhighsocialimpact...small-scalefinancialservicesforthosewithoutbankingrelationshipslargelyinthede-velopingworld.

In pursuitof ourgoalto attract,developandmotivateourstaff,wecontinueto shapeourhumanresourcestrategyto takeadvantageofthediversitywithinourglobalnetwork.. . . Byembracingandmanagingdiversitywithinourorgani-sationwegainthebestfromourpeoplewhileprovidingthebestserviceto ourcustomers.

Webelievethata keycomponentof careerdevelopmentat HSBCshouldbeworkinginternationallybecause itallowsouremployeestogaintheexperienceof anothercountryandculture.

HSBCcontinuestodevelopandimplementsectorriskpoliciesthatreinforceourcommitmenttosocialandenvironmentalsustainability.(TheGrouphaspublishedguidelinesfortheenergy,forest,freshwaterandchemicalsindustrysectors)

HSBCandclimatechange

Webelievefinancialinstitutionswillbe criticalin minimisingthe impactsof cli-matechange,playinga keyrole in financingthe shift to cleanerenergyandmoreefficienttransportoHSBCitselfaspiresto beamongthe leadingfinancialinstitutionsina low-carboneconomy.. . . HSBCis supportingits clientsto runenvironmentallyresponsiblebusinesses.. . . As partof our long-standingcom-mitmentto the environmentwehavesince2003 measuredenergyusageandCO2emissionsfromourofficesaroundtheworld,alongwithwasteproductionandwaterusage.. . . Inaddition,sincewebecametheworld'sfirstcarbonneu-tral bank in 2005, we havepurchasedcarbondioxide'offsets' . . . therebybringingourownnetimpactto zero.

Investingincommunities

Educationandenvironmentcontinueto beHSBC'skeyprioritiesforcommunityinvolvement.[The reportdescribesthe work of the HSBC Global EducationTrust,the 'InvestinginNature'eco-partnership,andinvolvementinotherenvir-onmentalconservationprojects.]

Measuringoursuccess. . . HSBC was named overall winner in the first Financial Times SustainableBankingAwards.

[HSBCwasalsoa winnerinthe2007HongKong Instituteof CPA's BestAnnualReportCompetition.]

(HSBCHoldingsPlc2006AnnualReviewandwww.hsbc.comjlj2jsustainability)

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DiscussionQuestions

1. Howmightthe HSBCstatementsoncorporateresponsibilityandsustainabilitybeimproved?

2. Researchthewebsitesof otherinternationalbanks.Whatdotheyhaveto sayaboutCSR andsustainability?WhyshouldHSBChavewontheFinancialTimesSustainableBankingaward?

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360 PRACTICES

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Case Study 15.4 Li & Fung Ud

Li & Fungis incorporatedin Bermudaandlistedin HongKong.Its 2006 turnoverwasaroundUS$8.5 billion,principallyin the UnitedStates andEurope.Thecompanyisthe parentof a groupof companiesin theexporttradingandimportingbusinesses.Itssupplychainembracesidentifyingconsumerneeds,productdesign,productdevel-opment,rawmaterialsourcing,factorysourcing,manufacturingcontrol,shippingcon-trol,forwardconsolidation,customsclearance,localforwardingconsolidation,whole-saler,to satisfiedcustomer.

Thecorporatesocial responsibilityandsustainabilitysectionof their2006 annualreportstates:

Li & Funghas developeda supplierCodeof Conductto be observedbyits ap-provedsuppliersaroundJheglobe.Thecodeis asetofstandardsbasedonlocalandnationallawsandregulationsandtheInternationalLaborOrganisationcodeconventions.These standards include underagelabor, force/prison labor,wagesandcompensation,workinghours,discrimination,disciplinarypractices,freedomof association,healthandsafety,environment,andtherightofaccess.A copyof thecodeis availableatourcorporatewebsite(www.lifung.com).

In2006, theGroupemployedmorethan100 dedicatedin-housecompliancestaftworldwideto conductsupplierevaluationsandmonitorcomplianceto thecodeamongthesuppliersthatproduceourcustomer'smerchandise.Theven-dor compliancedivisionis organizedindependentlyof our sourcing/merchan-disingdivisionsandfocuseson improvingour suppliers'laborconditionsandworkingstandards.

. . . Li & Fungalso providessystematictrainingto its suppliersto equipthemwithawareness,knowledgeand the necessaryskills and tools theyneedtomeetcompliancerequirements.

Li& Fungis amemberof BusinessforSocialResponsibility(BSR),aninterna-tionalUS-basednon-profitorganizationwhosemissionis to promotesociallyre-sponsiblebusinesspractices,innovationand collaborationthat demonstraterespectforethicalvalues,people,communityandtheenvironment.. .

Li& Fungalsoenforcesitscustomersenvironmentalpurchasingpolicieswithrespectto re-cycling,packagewaste minimization,and sustainabledevelop-mentinitiatives.Byadoptingenvironmentalconsiderationsas an integralpartof ourbusinessactivities,theGroupequatestheenvironmenttoourothercrit-icalbusinessconsiderationssuchas compliance,qualityandvalue.

Li & Fungis also a partnerin the UnitedNationsGlobalCompactInitiative,whichembracesand supports a set of core values in humanrights, laborstandards,the environmentand anti-corruption.The initiativeachievesthisthroughthe disseminationof goodpracticesbasedon certainuniversalprin-cipiesderivedfrominternationalconventionsanddeclarations-theTenPrinci-pies.Thesecovertherespectof andsupportfortheprotectionofhumanrights,abstinencefrom humanrightsabuses, freedomof association,eliminationof all forms of forced and child labor, eliminationof discriminationinemployment,promotionof environmentalresponsibility,andtheeliminationofcorruption.


Since2001, Li & Funghasbeenincludedas a componentof the DowJonesSustainabilityWorldIndexes,the world'sfirstglobalindexestrackingthe per-formanceof companiesworldwidein the threemaindimensionsof corporatesustainability:social,economicandenvironmentalresponsibilities.Li & Funghas also beenincludedas a constituentmemberin the FTSE4GoodIndexSe-

ries fromFTSE Group(UK)recognizingLi & Fung'scommitmentto highcorpo-ratesocialresponsibilitystandards.

In2007theywereawardeda prizeintheHongKongInstituteof CPA'sannualcorporategovernancereportcompetition.

Thecompanywonthe'CorporateGovernanceAsia RecognitionAwards2006andtheBestCorporateGovernanceDisclosureAwards2006 (GoldAwardsince2002).

(Li& Fung2006 annualreportandwww.lifung.comjeng/irjgovernance.php)

DiscussionQuestions

1. Li andFungis a tradingcompanythatappliesitsCodeof Conductto theactivitiesof its suppliers.Is this a soundbusinesspractice?

2. Studythecodeonthecompany'swebsite.Howmightitbe improved?

Case Study 1.5.5 CLP Group:Social and EnvironmentalReport

CLP is a majorgeneratorandsupplierof electricityin Australia,China,HongKong,India,andTaiwan.In their2006 Socialand EnvironmentalReport,CLP summarizestheirapproachto governanceandethicswiththediagramin figure15.1.

Vision

Policies andCodes

What do we want to be?

What benefits will we bring to our stakeholders?

How will we achieve this?

What guides the pursuit of our strategy?

What must we do to uphold our values?

What must we do to meet our commitments?

Mission

Strategy

Values

Commitments

Figure15.1 CLP Group'sapproach to governanceand ethics

We regard good ethics, embodied in the CLP Value Frameworkand our corpor-

ate governance structure, as fundamental to the achievement of our business

goals. We set up the Social, Environmental and Ethics (SEE) Committee of theBoard and put in place policies, processes and reporting structures to ensure

ethical behaviour throughoutthe Group.

CorporateCitizenship

CLP Group has set high standards of corporate citizenship. We believe thatwherever we operate we have a role to play in contributing to the social, eco-

nomic and environmentalwell being of the local community.

362 PRACTICES

Our actions must be aligned with our aspirations and standards and contribute

to the economic and social progress of the communities in which we operate.

We maintain these standards by:

Activelyand consistently supporting programmes in the local communities in

which we operate. These are specifically targeted towards the areas of com-

munitycare, youth and education, and arts and culture.

Engagingstakeholders substantively to provide timely and open communica-

tion and to take into account public views on our infrastructure development

projects, as well as to participate in public policy debates on matters of public

interest. We provide regular briefings and other 2-waycommunication for our

stakeholders, including our customers, employees, shareholders, suppliers,

the financial community, other businesses, government, the community andthe media.

An explicit commitment to corporate social responsibility.

Commitment to managingthe impact of all our operations on the environment.

It is our policyto use our resources responsibly while complyingwith all the ap-

plicable laws and regulations. We educate our people about environmental

concern and responsibility as we continuously monitor, report and improvethe

environmental performance of our business. CLP is an active participant in air

quality and climate change discussions.

Maintenance of supply reliability.CLP takes pride in its world-class perform-

ance of supply reliabilityand excellent customer services. Comprehensive and

effective risk management and asset managementsystems safeguard the reli-

ability and robustness of our power systems.

(CLP 2006 Social and EnvironmentalReport and www.clpgroup.com)

Discussion Questions

1. Compare the social and environmentalreport of CLP with the social and

environmental activities of Hong Kong Electric Ltd, the other major electricity

generator in Hong Kong (see www.hec.com.hk).

2. CLP has made a major commitmentto corporate social responsibility. If you were

a shareholder of CLP would you be satisfied?

As wesawin theearlierdiscussionof stakeholderphilosophies,manystakeholdersarepotentiallyin competitionfor corporateresources:for example,customerswantinglowerretailprices,employeesdemandinghigherwages,andenvironmentalprotectioncostsarepotentiallyin conflictoThe challengeto theboardin pursuingitsCSR strategiesandpol-iciesis to strikeasuitableandsustainablebalance.

A crucialquestionis whetherthereis a link betweenCSR andeconomicperformance.Althoughresearchstudieshavebeenconducted,abasicproblemhasbeenhowtomeasureCSR. Somestudieshavealsobeenmarredby an ideologicalbiasor limitedmethodology.Although a few studieshave shown some correlation betweenfirms' CSR and theirfinancialperformance,current researchdoesnot point to a decisivelink. However,the

- - -- - --.. --- - -- -


longertermeffectsofasoundCSRreputationinboththeconsumermarketandthestockmarketmaywellpersuadeboardsoftheimportanceof CSRefforts.

SomefirmshaveclaimedthattheirCSRpoliciesandreportshave:

Improvedbrandrecognitionandreputation

Madethefirmmoreattractivetoexistingandpotentialemployees

Improvedtopmanagementandboardlevelstrategicthinkinganddecisions

Producedinnovationsinthewaythefirmoperates

Respondedtocustomers'demands

Metstakeholders'andsociety'schangingexpectations

Forsuchreasons,manyfirmsapproachCSRasenlightenedself-interest.ButfewclaimademonstrablepositivecorrelationbetweengoodCSRpracticesandcorporatefinancialperformance.Thatiswhysomecompaniestalkabouta'triplebottomline',measuringandreportingonorganizationalperformancein economic,social,andenvironmentalterms.Somehavecalledthisa 'profits,people,andplanet'approach.This approachhasbeenadoptedin publicsectororganizationsaswellasprofitorientatedfirms.The growingnumberof investmentfundsnowfocusingon'sociallyresponsibleinvesting'alsosuggeststhattheremaybeasharepricepremiuminduecourse.

Nevertheless,CSRreportscanbuildnewlinksbetweencompaniesandtheirstakehold-ers.Relationshipsbetweencompaniesandtheircontractualpartnersin theaddedvaluechain,suchassuppliers,distributors,andcustomers,canbeenhanced.Employeesandtheirtradesunionsareprovidedwithanadditionalfocusin theirrelationswiththeem-ployer.Indeed,a standard(SA8000),rootedin normsdevelopedby theInternationalLabourOrganisation(lLO) andtheUN'sUniversalDeclarationofHumanRights,isusedbysomecompaniesasabasisforreportingontheiremployeerelations.Further,thestand-ingof thecompanyin society,atthelocal,national,andeveninternationallevelcanbeincreased.

Sustainability Reporting

In recentyearstheimpactof globalbusinessactivitieshasaddedafurtherdimensiontoCSR.Manycountrieshaveperceivedthreatstotheirenvironmentand,ultimately,totheirsocieties.Callshavebeenmadefor sustainabledevelopment,whichtheUnitedNations'BrundtlandReportdefinedas'developmentthatmeetstheneedsofthepresentwithoutcom-promisingtheabilityoffuturegenerationstomeettheirownneeds'(1987).

Or toquotetheInstituteforResearchandInnovationin SustainabilityinCanada:

sustainabilityisaboutlivingandworkinginwaysthatmeetandintegrateexistingenvironmental,eco-nomicandsocialneedswithoutcompromisingthewel1-beingoffuturegenerations.Thetransitiontosustainabledevelopmentbenefitstoday'ssocietyandbuildsamoresecurefutureforourchildren.

Someexamplesof states'recognitionof theneedfor sustainabledevelopmentinclude:

The EuropeanUnion establishedfishingquotasandotherfishinglimits to sustainfishstocks

....I

364 PRACTICES

China'sGuangdongProvincerequiredcompaniesthatpollutethegroundwatertableinthatregiontoclearuporclosedown

SouthAmericanandEuropeanUnioncontrolforestryproductstoprotecttherainfor-estandtoensurethatwoodlandissustainedbyreplanting

Onehundredandninetynations,representingtheproducersofaroundhalftheworld'sgreenhousegasemissions,ratifiedtheKyotoProtocol,whichcommitsthemtoreducetheworld'sgreenhousegasesbelow1990levelsby 2012andultimatelyto reversethegreenhouseeffect

TheGeneralMotors(GM) case,whichfollows,providesaworkingexampleofarecentenvironmentalandsustainabilityreportoFornearlyacentury,GM hasaffectedthelivesofcountlesspeoplearoundtheworld.Today,againstanevermorecompetitiveandchalleng-ingbackdrop,GM remainscommittedtoleadingnotonlyfromabusinessstandpoint,buteconomically,socially,andooenvironmentallyaswell.

GM'sKeyPerformanceIndicators(KPIs) forenvironmental,economic,product,andsocialcriteriaarereportedin aperformancescorecard.TheinformationcoversfourareasofGM activities-economic,product,environmental,andsocial.GM policyistoimprovetheirenvironmental,social,andeconomicperformancecontinuously.GM'sintentionistoincreasethenumberofKPIspublishedeachyear.TheinformationbelowisextractedfromtablespublishedbyGM fortheirworldwideoperations.

CaseStudy1.5.6GeneralMotors:CSRKeyPerformanceIndicators

Table15.1GeneralMotors:(SR keyperformanceindicators

EconomicIndicatorsQuantitative

measureCommentonannual

performance........................................................ ....................................

Netsalesandrevenue

Netincome

EarningspershareVehiclessales

US$

US$

US$pershare'oNumbercarsandtrucks

Up4.3%

Down3.4%

Down30.1%

Up1.8%

Marketsharevehiclemarket % Down0.7/?

Productindicators

Fueleconomy(inUS)- carsandlighttrucks

CO2emissions(inUS)- carsand lighttrucks

Quality(inUS)GMand industryaverage

MilesperUSgallon

cazpermilebymodelyear

Initialqualityproblems

2%and1%increase

2%and1%reduction

7.7/10.5%improvement


Table15.1Continued

EconomicIndicatorsQuantitative

measure~ ............-.............

Environmentalindicators

Energyuse

CO2emissions

Waste

Recyelingrate

Wateruse

5itescertifiesto 15014001

GWh

Mil.metrictons

Mil.metrictons

percentagemil.cubicmeters

percentage

Socialindicators

Communitydonations/sponsors

Employees

Diversity(U5)

Diversity(U5)

Discriminationcharges

Employeesatisfaction

$million

number

%femaleempl'ees

%minorityempl'eesnumber

%satisfiedempl'ees

InjuryrateLosttimeaccidentrate

% per100empl'ees

% per100empl'ees

Commentonannualperformance.,............................

Reduced13.6%

Reduced12.5%

Reduced11.5%

Increased4-4%

Reduced23.3%

117of118facilitieshaveimplemented

Reduced6.3%Reduced0.6%

Reduced1.5%Increased2.6%

Reduced16.7%10%increaseinsatisfaction

Reduced14.6%

Reduced6.9%

(Seewww.gm.comjcorporatejresponsibilityjreportsjOlj sustainability-and~m)

DiscussionQuestions

ConsidertheKPls ineachof thefourareasusedbyGeneralMotors:

economic

productenvironment

social1. Aretheseindicatorsappropriate?

2. Wouldyouaddanyothers?

3. Arethemeasuresusedappropriate?Istheuseofpercentagechangessound?

An interestingexampleofonecompany'scommitmenttosustainabilityandthebasisoftheirsustainabilitydevelopmentpolicyfollows.

366 PRACTICES

~

tI

CaseStudy15.7SwirePacific'sSustainableDevelopmentPolicy

SwirePacificLtd(www.swirepacific.com)is publiclyquotedinLondonandHongKong.Itoperatesa diverserangeofbusinessesincludingCathayPacificAirways,property,beveragesandCoca-Colabottling,marineservices,trading,retail,andsupportser-vicesfortheoffshoreoilandgasindustryworldwide.Consequently,thegroupadoptsadecentralizedapproachtomanagement.

Theboardof SwirePacificacceptedtheOctober2007UN EnvironmentAgencyReportontheGlobalEnvironmentalOutlook:

Weappeartobelivinginanerainwhichtheseverityofenvironmentalproblemsareincreasingfasterthanourpolicyresponses.Toavoidthethreatof cata-strophicconsequencesinthefuture,weneednewpolicyapproachestochangethedirectionandmagnitudeofdriversofenvironmentalchangeandshiftenvir-onmentalpolicymakingtothecoreofdecisionmaking.

Thedirectorsbelievedthatthesignificantproblemsincludedglobalwarming,pol-lution,loss of biodiversity,non-sustainablefishing,non-sustainableuseof groundwater,depletionof non-renewableresourcessuchas oil,andtheriskof populationgrowthoutpacingfoodproduction.Recognitionofthemagnitudeoftheglobalwarm-ingproblemandthattheseincreasinglysevereenvironmentalproblemswouldun-doubtedlyimpactonthedevelopmentoftheirbusinesses,thecompanyappointedtheirfirstDirectorof SustainableDevelopment,RobertGibson,in2007.TheboardalsoendorsedaSustainableDevelopmentprogrammetobeimplementedthroughoutthegroup(seewww.swirepacific.com/eng/globaljhome.htm).

Thechairmanofthecompany,ChristopherPratt,outlinedthecompany'sapproachtothemanagementofsustainabledevelopmentasfollows:

Swire Pacific Sustainable DevelopmentPolicy

We adoptthispolicybecause:

Longtermvaluecreationforourshareholdersdependsonthesustainabledevelopmentofourbusinessesandthecommunitiesinwhichweoperate.

Wewishtoexcelascorporatecitizens.

Ourpolicy: Industryleadership:Wewillworkwithothersto promotesustainabledevelop-

mentinthe industriesinwhichweoperate.

In ouroperations:Wewillmeetor exceedall legalrequirementsand:

- Be a goodstewardof thenaturalresourcesandbiodiversityunderour in-fluenceandensurethatallpotentialadverseimpactsof ouroperationsonthe environmentare identifiedandappropriatelymanaged.

- Operateas far as is reasonablypracticableina mannerwhichsafeguardsthe healthandsafetyof allourstakeholders.

- Striveto beanemployerof choicebyprovidinganenvironmentinwhichallemployeesare treatedfairlyand with respectand can realisetheir fullpotential.


- Favoursuppliersandcontractorswho promotesustainabledevelopmentand encouragethe responsibleuse of our productsand servicesbyourcustomersandconsumers.

- Promotegoodrelationshipswiththecommunitiesofwhichwearea partandenhancetheircapabilitieswhilerespectingpeople'scultureandheritage

Makingit happen:

AIIcompaniesinwhichSwirePacifichasacontrollinginterestwillhaveactionplansfor applyingthis policyina waywhichis relevantto theirbusiness.Wewill encourageothercompaniesin whichwe havean interestas a share-holderorthroughoursupplychainto implementsimilarpolicies.

Wewillencourageandempowerourstaff to be proactiveon sustainablede-velopmentmattersbothatworkandinthecommunity.

Wewillmonitorourperformance-andreportregularly.

Wewill reviewthis policyperiodically,havingregard,in particular,to stake-holderdialogues.

Theroleof eachgroupcompany:ManagementofSustainableDevelopmentincludesprotectingagainstrisksandtakingadvantageof opportunities.Responsibilityfor doingthis restswiththe linemanagementof operatingcompanies.Theyare recommendedto usethefollowingtools:

Forstrategysetting:

1. Best inClass (seenotebelow)to set aspirations

2. EnterpriseRiskManagementto identifybusinessrisks

3. StakeholderEngagementto identifystakeholderissues whichmayimpactthebusiness. .

Forcontrol:

1. Self AssessmentQuestionnairesto confirmrisk managementproceduresarebeingfollowed.

Forreporting:

1. GlobalReportingInitiative'sframeworkto reportin a consistentmannertostakeholders.

Note:The reportingshouldbethe endresultof a comprehensiveapproachtomanagingsustainabledevelopment.Careshouldbetakento avoid'reportingfor reporting'ssake'.GRI is adoptedas it is widelyusedandprovides:

i. Aconsistentframeworkfor thinkingaboutsustainabledevelopmentissuesenablingall companiesto usethesamedatadefinitionsandterminology.

ii. A checklistto assist companiesensuretheycoverall importantissues.

iiL Flexibilitytoonlyreportonwhatis importanttoabusiness.ForthebasiclevelofGRIreportingitis onlynecessaryto report10 outthepossible72 perform-anceindicators.Thisminimisesthewasteof 'reportingforreporting'ssake.'

iv.Materialtoeducatestaff onthe reportingprocess.

-- ,. - --

v. Reportswhicharemoreusefulto stakeholdersbecausetheyarebasedoncommondefinitionsandprocess.

1368 PRACTICESSwire Pacific's oversight role

Swire Pacific provides support in terms of group direction, policies and risk man-

agement culture. It requires operating companies to report on their activityso

that risks can be monitored and overall risk exposure managedat group leve!.

Note:The 'Best in Class' process was started in 2007 for climatechangeissues.(https:jjwebmail.pp.jsshk.com:8001jjrgjDraftsjRE:%20Swire.EML?Cmd=reply&Create';"O#_ftn1)

Companies are encouraged to extend it to other environmental stewardship

issues which are relevantto their business. The process involvesansweringthe

following questions for E?,.achissue under consideration.

1. What industry is yourcompany in and which leadingcompanies in that indus-try can you take as a 'Peer Group'?

2. What, from examiningyour 'Peer Group', is best in class behaviour for yourindustry?

3. For important items where your Peer Group is doing better than you what do

you need to do to catch up and how much is this going to cost?

The process should identify differences between current business operations

and the 'best' possible way of meeting customer demandoThis can clarify risksthe business is exposed to and set aspirations for improvement.Best in Class

performance will improveas technologyadvances and other changes affect theworld.The speed with which a companymoves towards its 'best in class' aspira-

tions should be decided by its board and managementtaking into account com-

mercial considerations. If a companyowns long-lifeassets which are not 'best in

class' then there may be strong commercial reasons for retainingthese assets

ratherthan investingin new 'best inclass' assets. A keyelementof defining'bestin class' on climatechange issues is to definegreen house gas emission and en-

ergy intensitymetrics appropriateto gaugingprogress in each industry.

(See www.swirepacific.comand www.swire.com)

DiscussionQuestions

1. Whereis the boundarybetween'EnterpriseRiskManagement'and 'ManagingforSustainableDevelopment'?

2. Theboardof SwirePacificmadethe2007 UNEnvironmentAgencyReportonthe GlobalEnvironmentalOutlookthe basis fortheirsustainabledevelopmentstrategy.Arethe policiesthatflowfromthisviewconsistentwithmaximizingshareholdervalue?

3. TheSwirePacificgroupoperatesin a diverserangeof industriesfromairlinestoCocaColabottling.Is thepursuitof a groupwidesustainabledevelopmentprogrammerealistic?

- - -- - -


TheGlobalReporting Initiative (GRI)

TheGlobalReportingInitiative(GRI),whichwassparkedbytheUN workmentionedear-lier,isaworldwide,multi-stakeholdernetworkto createanddevelopasustainabilityre-portingframework,in whichbusiness,civilsociety,labour,investors,accountants,andotherscollaborate.TheGRl isbasedontheunderlyingbeliefthatreportingoneconomic,environmental,andsocialperformancebyallorganizationsshouldbeasroutineandcom-parableasfinancialreporting.TheGRI facilitatestransparencyandaccountabilitybyor-ganizationsofallsizesandsectors,acrosstheworld-companies,governmentalandotherpublicagencies,andnon-profitentities.

Thesustainabilityreportingguidelinesprovidethecornerstoneforthesustainabilityre-portingframework,whichprovidesorganizationswiththebasisfordisclosureaboutsus-tainabilityperformance,and stakeholderswith a universallyrecognizedcomparableframeworktoassesssuchinformation.Th~guidelinesconsistof reportingprincipIesandguidance,withstandarddisclosuresandperformanceindicators.

Figure15.2providesanoutlineofthesustainabilityreportingguidelines.The principIesand guidancesectionof the frameworkdefinesthe sustainability

report'scontent,whichhelpstodeterminewhereitsboundariesshouldbedrawn.ThecontentprincipIescovermateriality,stakeholderinclusiveness,sustainabilitycontext,andcompleteness,alongwithabriefsetof testsfor eachprincipIe.Thequalityprin-cipIescoverbalance,comparability,accuracy,timeliness,reliability,andclarity,alongwith teststhatcanbe usedto helpachievetheappropriatequalityof the reportedinformation.

I PrincipIesandguidanceI

Profile

Guidancefordefiningreportcontent

Principiesfordefiningreportcontent

PrincipIesforensuringreportquality

Guidanceforreportboundarysetting

[ Standarddisclosures

Figure15.2Outlineofthesustainabilityreportingguidelines

370 PRACTICES 1I

Thestandarddisclosuressectionoftheframeworkhasguidelinesthatidentifytheinfor-mationthatisrelevantandmaterialtomostorganizationsandof interesttomoststake-holders.

Threetypesof standarddisclosureareincluded:

Theorganization'sprofile-informationthatsetstheoverallcontextforunderstandingtheorganization'sperformanceincludingitsstrategy,profile,andgovernance

Theorganization'smanagementapproach-informationabouttheorganizationthatprovidesthecontextforunderstandingitsperformance

Performanceindicators-whichprovideinformationontheeconomic,environmental,andsocialperformanceoftheorganization

The GRI is beingadoptedby manyorganizationsaroundthe world: hundredsof companiesbasedin manycountriesdisclosedsustainabilityreportslastyearusingtheGRI framework.In additionmanyothercompanies,particularlythoseoperatingglobally,havedevelopedtheir own approachesto environmentaland sustainabilityreporting.

As corporatesustainabilitybecomesincreasinglyimportant,systemsarebeingdevel-opedto managethemassesof datainvolvedto produceregularCSRandsustainabilityreports.Softwarehasbeendevelopedtouseacompany'sexistingintranetfacilitiestocollectandcollatethenecessaryinformation.

BalancingCorporateResponsibilities

Everyboardhastobalanceitsoverallresponsibilityto investorswithobligationstoem-ployees,suppliers,distributors,customers,non-equitysourcesof finance,localcom-munitiesaffectedby theirdecisions,andfor environmentalimpactstheir companymighthave,aswellaswithbroadersocietalexpectations,whilststayingwithinthelawsof thecountriesin whichtheyoperate.But thechallengeto corporatedirectors,toestablishCSRstrategiesandpolicies,andtobalancecompetingclaimsonresources,issignificant.

Microsoftprovidesausefulexample.Mostpeoplewouldagreethatthiscompanyhasbeensuperblysuccessfulandmadeasignificantimpactin theworldof informationtech-nology.Itssoftwaredrivescountlessbusinessandpersonalcomputersin everycountryintheworld.Wehavestudieditscorporatevaluesandmissionstatementearlier.Itsfounder,Bill Gates,continuesto donatemassivesumsof hiswealthderivedfromthecompany,throughtheBillandMelindaGatesFoundation,toenhancehealth-careandreduceextremepovertyaroundtheworld,and,in theUnitedStates,toexpandeducationalopportunitiesandaccesstoinformationtechnology.YettheEuropeanUnionandtheUnitedStatesgov-ernmentbothcontinuetochallengethecompanywithmassivelegalbattlesclaimingmon-opolisticpractices,andattemptingtoreduceMicrosoft'sdominationofthemarketplace.

In non-profitentitiesthegoverningbodies'primarydutyistoitsmembers,butbroadersocietalresponsibilitieshavealsotobebalanced.Boardsneedtomakechoices.Inertiain-evitablyleadstounresolveddilemmas.

- - - -- - -


Eachboardhastobetheconscienceof itscompany.Directorsneedtoprovidethecom-panywithitsmoralcompass.In fulfillingitsroletheboardisresponsibleforconsideringthepotentialeffectof thestrategiesit formulates,foridentifyingthelikelyimpactofpoliciesitapproves,bothshortandlongterm,forrecognizingpossibleoutcomesonpeople,andforacceptingitsdutytobeaccountable.Aswehavealreadyseeneveryboardhasa dutytoformulatethecompany'sstrategy,recognizingtherisksinvolved.Part of thatprocessinvolvesdetermininghowthecompanywillbehave;inotherwordsestablishinghowsocialresponsibilitywillbeexercisedthroughouttheenterprise.A companydoesnothavemorals:directorsdo.

REFERENCES AND FURTHER READING

Banks,Erik (2004)Corporate Governance: Pinancial Responsibility, Controls and Ethics. New York: PalgraveMacmillan.

Chandler,DavidandWilliamB.WertherJr. (2005)CorporateSocialResponsibility:Stakeholdersin a GlobalEnvironment.London:Sage.

Cramer,Jacqueline(2006)CorporateSocialResponsibilityandGlobalisation:An Action Plan for Business.Sheffield:GreenleafPublishing.

Crowther,DavidandLezRayman-Bacchus(eds.)(2004)Perspectiveson CorporateSocialResponsibility.London: AshgatePublishing.

Grayson,David andAdrian Hodges (2004) CorporateSocialOpportunity:7StepstoMake CorporateSocial

ResponsibilityWorkfor YourBusiness.Sheffield:GreenleafPublishing.

Habisch,Andretal.(eds.)(2005)CorporateSocialResponsibilityacrossEurope.London:Springer.

Hamschmidt,Jost(2007)Casesin SustainabilityManagementandStrategy:TheOikosCollection.Sheffield:GreenleafPublishing.

Hancock,John (2004)Investingin CorporateSocialResponsibility:A Guide toBestPractice,BusinessPlan-ningandtheUK'sLeadingCompanies.London:FTSE.

Kotler,PhilipandNancyLee(2004)CorporateSocialResponsibility:DoingtheMostGoodforyourCompanyandyourCause.NewJersey:JohnWileyandSons.

Raynard,Peter(ed.)(2006)Tomorrow'sHistory:AnAnthologyofSimonZadek'sWork.Sheffield:GreenleafPublishing.(AcademyofManagement's2006SIMbookprize.)

Sims,RonaldR.(2003)EthicsandCorporateSocialResponsibility:WhyGiantsPall.Westport,CT:Praeger/Greenwood.

StationeryOffice(UK) (2006)'HowtoUsetheCSRCompetencyFramework'.A resourcepackforusingtheCSRCompetencyFramework.Availableat:www.tso.co.uk

Reich,RobertB.(2006)Supercapitalism:TheTransformationofBusiness,DemocracyandEverydayLife.Londong:BorzoiBooks/RandomHouse.

Rezaee,Zabihollah,LynnTurnerandDianeL.Swanson(2008)CorporateGovernanceandEthi

372 PRACTICES

Zadek,SimonandMalcolmMcIntosh(2000)'AccountabilityandGovernance',JournalofCorporateCiti-zenship,Winter,No.8.

Zerk,JenniferA. (2006)MultinationalsandCorporateSocialResponsibility:LimitationsandOpportunitiesin lnternationalLaw.Cambridge:CambridgeUoiversityPress.

USEFUL WEBSITES

www.article13.com

AdvisoronCSRpolicyandstrategy.

www.business-ethics.com

BusinessEthics--thejournalforcorporateresponsibility.

www.ceres.orglsustreportingSustainabilityreporting.

www.complianceweek.comNewsletteroncorporategovernance,risk,andcompliance.

www.csracademy.org.uk!managermindsets.htmBusinessin theCommunity-CSR Academy.

www.csr.gov.ukUK Governmentgatewaytocorporatesocialresponsibility.

www.csrwire.comNewsitems00CSR.

www.esp-net.com

Softwarefor tracking and reporting 00 CSR and sustainability.

www.gm.com(followlink through'investors'and'corporateinformation')GeneralMotorscorporategovernanceandcorporateresponsibilityreports.

www.sustainability-reports.comPortalforsustainabilityreportsofmultinationalcompaniesallovertheworld.

www.sustreport.orgCanadianInstituteforResearchandIonovationin Sustainability.TheSustainabilityReport.

PROJECTS AND EXERCISES

1. DevelopaCSRpolicystatementforanyorganizationwithwhichyouarefamiliar.It couldbe,forexample,foraprofitorientatedcompany,anacademicinstitution,orsomeother'not-for-profit'enterprise.Developasetofperformanceindicatorstomonitorandmeasuretheorganization'sachievements.

2. UsetheInternettofindandcomparetheCSRstatementsof avarietyofcompaniesaroundtheworld.Prepareareport/presentationwithyourfindings.

3. Developasustainabilityreportforanorganizationwithwhichyouarefamiliar.

- - - ---


SELF-TEST QUESTIONS

To confirmyourgraspof thekeypointsin thischaptertry answeringthefollowingquestions.Answersareattheendof thebook.

1.Namesixtypesofstakeholderthatacompanymighthave.

2.Whatmightafirm'ssociallyresponsibleactivitiesinclude?

3.IstherealinkbetweenCSRandeconomicperformance?

4.WhatistheGlobalReportingInitiativeandwhoisinvolved?

5.HowdoestheBrundtlandReportdefinesustainabledevelopment?

6.Whatistheunderlyingbeliefof theGlobalReportingInitiative(GRI)?

7.WhatisGRI?

8.WhatdoesGRI facilitate?

9.Whatdotheprincipiesandguidancesectionof theGRI frameworkprovide?

10.Whatdothecontentprincipiesof theGRI frameworkcover?

Documents

Corporate Social Responsibility and Sustainability