MIM 511/BA 548Day 4: Transparency

Scott MarshallAssociate Dean, Graduate Programs and Research

Transparency What is meant by ‘corporate transparency’?

◦ Actions that reduce ‘information asymmetry’ in one or more components of a company’s value chain by revealing ‘credence attributes’

◦ ‘Credence Attributes’ – characteristics of processes, products and companies that a consumer/citizen is not able to determine 1. Before purchasing and during use of a product,2. When living in proximity, and/or3. Considering investment decisions

The Transparent Economy – TIGERS

◦ Traceability (Patagonia)◦ Integrated Reporting◦ Government Leadership◦ Environmental Boundaries

(Global Footprint Network)◦ Rating and Ranking◦ Shadow Economies

(Business & Human Rights Resource Centre - adidas)

Transparency

Transparency Leadership in the Age of Transparency

◦ “The big idea: The key to becoming a contemporary corporate leader is to take on responsibility for externalities—what economists call the impacts you have on the world (like pollution) for which you are not called to account.”

◦ Ripples of Responsibility Take Ownership Take Action Take Interest

Pressures – Civil Society and NGOs

Transparency

Pressures – Investment Community

Transparency

Investment Funds Incorporating ESG Factors, 1995-2010 1995 1997 1999 2001 2003 2005 2007 2010

Number of Funds 55 144 168 181 200 201 260 493 Total Net Assets (In Billions) $12 $96 $154 $136 $151 $179 $202 $569 SOURCE: Social Investment Forum Foundation NOTE: ESG funds include mutual funds, annuity funds, closed-end funds, exchange-traded funds (ETFs), products, alternative investment funds and other pooled but exclude separate account vehicles.

Pressures – Government Key developments globally

– Growing number of Multilateral Environmental Agreements

– International corporate accountability / MNC liability regimes

– EU Chemicals policy (REACH)

– EU Integrated Product Policy - LCA implications

– Regulatory pressure for reporting

– Environmental tax reform requirements

– Personal / class action claims

Transparency

Pressures – Competitors and Industry Leaders

Transparency

2010 Ceres-ACCA Sustainability Reporting Awards

Trends – Certifications and Labels

Demand for products with ecolabels is growing.

Transparency

Fragmentation and confusion to institutional buyers as well as individual consumers.

Confusion continues to grow due to competing claims on what makes a product ‘green’, ‘socially responsible’, etc., especially when there are two or more competing schemes for the same sector or product.

Trends – Certifications and Labels

Transparency

Product Certifications

Trends – Certifications and Labels

Transparency

Process Certifications

Trends – Certifications and Labels

Is “Organic” a Product or Process certification?

Transparency

Trends – Certifications and Labels

For more information, check out: Ecolabel Index (www.ecolabelindex.com) and Global Ecolabel Monitor, Towards Transparency

2010 (Source: World Resource Institute and Big Room)

Transparency

Trends – Reporting

Sustainability reporting-norm among large companies globally, 1996-300 reports, 2008 - 3,100 reports.

Variable and unreliable measurement and disclosure results.

Synchronization of voluntary reporting frameworks; XBRL taxonomies for non-financial information; new U.S. SEC rule requiring financial statements in a XBRL format as part of SEC filings.

Regulatory and audit oversight of sustainability issues-norm within five years, in both the developed and developing world, across all industries.

Transparency

Trends – Corporate Affiliations

Transparency

Apparel and Footwear Competitive Dynamics

Selected Footwear Marketers (> US$1 Bill) Company 2005 2006 2007 2008

Nike, Inc. $8,387.1 $9,025.1 $10,472.9

$10,894.

2 Adidas AG 5,956.9 5,945.7 6,512.4 7,237.5 Puma AG 1,463.3 1,783.8 1,902.5 2,110.3 Asics Corporation 1,023.8 1,162.6 1,419.1 1,728.6 Geox SpA 566.6 769.1 1,055.7 1,313.2 Skechers USA Inc. 797.8 956.6 1,098.9 1,139.6 Wolverine Worldwide Inc. 964.5 1,036.9 1,099.2 1,106.1 Ecco Sko A/S 589.6 707.6 911.3 1,012.2 The Timberland Company 1,200.1 1,126.9 1,004.8 974.3 Jones Apparel Group 978.6 941.1 955.8 938.3

Apparel and Footwear Competitive Dynamics

Company Fair Labor

AssociationDJSI 2010

CERES Report Award

Global 100 BICEP*

Eco-Index

Nike, Inc. √ 2009 √ √ Adidas AG √ √ 2010 Puma AG √ √ √ Asics Corporation √ √ Geox SpA Skechers USA Inc. Wolverine Worldwide Inc. Ecco Sko A/S The Timberland Co. 2010 √ √ Jones Apparel Grp

BICEP: Business for Innovative Climate and Energy Policy

Apparel and Footwear Competitive Dynamics

Brooks?

Significantly increasing demands for transparency – process, product, company

Also, significant increasing mechanisms for conveying transparency – some legitimate, some not. Fair amount of confusion.

Leadership matters! A lot! Need to discover what is authentic about what a company says…and what others say about a company.

Apparel and Footwear – competition is primary driver of sustainability-based initiatives. Consumers and governments are important, but secondary.

Summary of Today

In teams of 4 or 5 (not 1,2,3,6, etc.)1. Identify and describe the key risks that UPS wanted

to ‘proactively manage’. Understand UPS’ strategy by placing these risks into the four quadrants of the Sustainability Value Framework.

2. Identify and briefly describe UPS’ key stakeholders and how they relate to CSR risks.

3. Share with each other the key outcomes of your teams’ transparency analyses of UPS’ recent CSR report.

4. Identify the ways you believe that transparency through its CSR report helps/doesn’t help UPS ‘proactively manage risk’.

UPS and CSR: Proactively Managing Risks