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“BEST Sustainability Report (BSR)” Guideline:
A 5-stage, Double-entry Approach
to Integrating Firm Competitiveness and CSR
Dong-Sung Cho
Professor of Strategy, Seoul National University
President, Korean Association of Academic Societies
Question:
Firm 1: $1 million profit, but subject to contempt by the
society in which it operates.
Firm 2: $500 thousand profit, but with love and respect by
the society.
Which firm do you want to have?
Which firm do you want to inherit to your children?
PART ONE
NEED FOR A NEW GUIDELINE
FOR SUSTAINABILITY REPORT
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2 . 윤리경영이란 무엇인가
BusinessEthics
Principles/norms/sense of morality that must be abided while engaging in business activities
Narrow scope: provision/standard compliance and training
Broad scope: compliance with values and global standards
CorporateSocial
Responsibility
Considers the impact of business activities on the stakeholders
Obligation to pursue a socially desirable long-term goal that surpasses the standard as demanded by the law and the market
EnvironmentalProtection
The Club of Rome’s Declaration raised awareness on the catastrophic impact that resource depletion and environment destruction have on humanity
Businesses are made aware that they are the main culprits of resource depletion and environment destruction and of the obligations to take responsibility for the outcomes
1. TREND OF REPORTS FOR EXTERNAL STAKEHOLDERS
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Business ethics
Principles/norms/sense of morality that must be abided while engaging in business activities
Narrow scope: complies with provisions/laws and conducts trainings
Broad scope: complies with values and global standards
CorporateSocial
Responsibility
Considers the impact of business activities on the stakeholders
Obligation to pursue a socially desirable long-term goal that surpasses the standard as demanded by the law and the market
EnvironmentProtection
The Club of Rome’s Declaration raised awareness on the catastrophic impact that resource depletion and environment destruction have on humanity
Businesses are made aware that they are the main culprits of resource depletion & environment destruction & of the obligations to voluntarily & involuntarily take responsibility for the outcomes
SustainabilityManagement
Triple Bottom Line: pursuit of economic, social and environmental performance
Development that meets the needs of the present generation while protecting the potential to satisfy the needs of the future generation
2. EMERGENCE OF SUSTAINABILITY MANAGEMENT REPORT
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<Excerpt from WWF and Mandag Morgen (April 2002), Experiences and Opportunities from the Nordic Partnership>
3. FREQUENCY OF TERMINOLOGIES USED BY MAJOR MEDIA(Study of frequency of usage of the terminology by 12 major media groups over 7 years)
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2. 윤리경영이란 무엇인가
EnvironmentSocietyEmployee ConsumerProd. facility
Environment management
Existing management
Customer management
Ethics management+ + +
Sustainability reportAnnual report
4. DOMAINS OF ANNUAL REPORT VS. SUSTAINABILITY REPORT
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5. NUMBER OF SUSTAINABILITY REPORTS BY COUNTRY
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[PA
RT
II]
6. NUMBER OF SUSTAINABILITY REPORTS IN KOREA
- As of May 2007, 31 companies in Korea have published the report.
IBK/KNHC/Korea Gas Safety Corporation /Woongjin Think Big /Hana Bank
2007 (5 companies)
KT / SEC / Yuhan-Kimberly / Woongjin Coway / LG Electronics / Daewoo Securities / SK Telecom /KOMPO / KOSEP / GS Caltex
2006 (10
companies)
KEPCO / SK Corp. / Korean Air Lines / Shinhan Bank / HMFI / Hanwha Chemical Corp. / Lotte Dep’t Store / Korea Water Resources Corporation / Korea Land Corporation
2005 (9 companies)
Posco / BAT Korea / Diageo Korea2004 (3 companies)
Samsung SDI / Hyundai Motor / Kia Motors / Korea Dow Corning2003 (4 companies)
CompanyYear
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• Defining Report Content• Defining Report Quality• Setting the Report Boundary• Profile• Disclosure on Management Approach• Performance Indicators• Sector Supplements
Developed by the U.S. non-governmental organization, Coalition for Environmentally Responsible Economies (CERES) and United Nations Environment Program (UNEP) in 1997 An Exposure Draft for voluntary use by organizations for reporting on the economic, environmental, and social dimensions of their activities, products, and servicesA newly revised version, “G3” is slated to be published in October 2006 after revision in 2002 (“G3” slated for publication)
[P
AR
T
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]
GRI Guideline: A universal standard that comprises various indicators for sustainability report
StructureC
haracteristics
7. MAJOR GUIDELINES: GRI GUIDELINES
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Announced in 1976, amended four times, and currently adopted by 33 countriesSpecific guidelines developed for the environment sector in June 2004 (evaluates the entire process of environment management system, information disclosure, risk response, enhancement of environment-related performance, accident prevention, training, partnership establishment)
OECD MNEs Guidelines: International behavior standards for multinational companies (MNC)
Chapter 2 Contains specific recommendations on eleven provisions (human rights, sustainabledevelopment, local capacity building, human capital, governance, and etc.)
General Policies
Addresses major aspects of corporate behavior in this area including respect for worker’s rights, child and forced labor, non-discrimination, support collective agreements, and hiring and training of local hires
Employment and Industrial Relations
Chapter 4
Recommends regular disclosure on all material matters regarding the enterprise such as its activities, ownership, financial status, and performance, and encourages communication in areas where reporting standards are still emerging such as social, environmental and ethical reporting
DisclosureChapter 3
Recommends transparency, disciplinary procedure, prevention of illegal political contributions Combating BriberyChapter 6
Calls on enterprises to respect both the letter and spirit of tax laws
Emphasizes the importance of an open and competitive business climate and discourages entering into agreements that undermine fair competition
Recommends intellectual property rights reporting, transfer of technology and know-how, establishment of relation with local universities and research institutions
Recommends that enterprises satisfy health and safety-related standards, provide information, handles consumer complaints, and respect consumer privacy
Makes recommendations concerning development and maintenance of environmental management systems, goal setting, regular inspection of progress, evaluation of the entire process, and trainings
Sets out the principles which underlie the Guidelines, their significance, and the role of the government
EnvironmentChapter 5
Science and TechnologyChapter 8
TaxationChapter 10
CompetitionChapter 9
Consumer Interests
Concepts and principles
Chapter 7
Chapter 1
StructureCharacteristics
8. MAJOR GUIDELINES: OECD MNES GUIDELINES
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Enacted in Jan., 1999. Comprises of 10 principleson four categories including human rights, labor, and environmentThe Global Compact seeks to promote responsible corporate citizenship so that business can be part of the solution to the challenges of globalization in the in the areas of human rights, labor and environment areas of human rights, labor and environment The Global Compact provides the most universal indicators that serve as the foundation of all indicatorsSets forth the minimum compliance standards for businesses to prevent free ride of unethical businesses
Human rights1. Businesses should support and respect the protection of internationally
proclaimed human rights; and2. make sure that they are not complicit in human rights abuses
Labor3. Businesses should uphold the freedom of association and the effective
recognition of the right to collective bargaining;4. the elimination of all forms of forced and compulsory labor;5. the effective abolition of child labor; and6. the elimination of discrimination in respect of employment and
occupation.
Environment7. Businesses should support a precautionary approach to environmental
challenges;8. undertake initiatives to promote greater environmental responsibility; and9. encourage the development and diffusion of environmentally friendly
technologies
Anti-Corruption 10. Businesses should work against all forms of corruption, including
extortion and bribery.
UN Global Compact: Spearheaded by Secretary-general Ban Ki-moon, a
commitment made by businesses to voluntarily abide by the code of conducts
StructureCharacteristics
9. MAJORGUIDELINES: GLOBAL COMPACT
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Investment-driven, rather than performance-driven
Stakeholders are interested in the results rather than the investment itself.
1
Without objective auditing by responsible entities, the report is merely a piece for PR purpose.
No auditing2
High hurdles
Smaller companies have hard time reaching the expected level. Only the major global companies can meet the target.
3
8. CRITICISM ON THE MAJOR GUIDELINES (1, 2, 3)
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Until the 20Until the 20thth century, firms have pursued a century, firms have pursued a single objective of maximizing single objective of maximizing profitprofit..
In recent years, however, NGOs have demanded firms to In recent years, however, NGOs have demanded firms to ““act responsibly act responsibly toward the societytoward the society”” in which they operate. The firms responded with in which they operate. The firms responded with ““Sustainability management.Sustainability management.””
But But ““Sustainability managementSustainability management”” requires firms to be internally competitive so requires firms to be internally competitive so that they can deliver what is expected. To do so, a firm typicalthat they can deliver what is expected. To do so, a firm typically goes through ly goes through innovative and creative management.innovative and creative management.
In this way, corporate managers are practicing management that iIn this way, corporate managers are practicing management that is consistent s consistent with both instinct and reason.with both instinct and reason.
8. CRITICISM ON THE MAJOR GUIDELINES (4)
NGO-Perspective4
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Past
Future
Internal stakeholder External stakeholder
Annual report
?
Ethics report
CSRreport
Environmentalreport
Sustainability report
10. PRESENT POSITIONS OF THE TWO REPORTS
?
PART TWO
INTRODUCING A NEW GUIDELINE:
“BEST” SUSTAINABILITY REPORT
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BEST Stands for “Business Ethics is the Source of Top performance.”
BEST Forum was inaugurated by a group of Korean firms in March 2003.
Best practices in ethics management are discussed in the monthly BEST Forum.
CEOs study ethics management in the BEST CEO Club every three months.
In its 1st anniversary in 2004, 12 CEOs pledged to be personally responsible for ethics management in their respective organizations. The number of CEOs who participated in the annual pledge ceremony grew to 31 in 2005, 56 in 2006, and 60 in 2007.
The pledging ceremony in 2007 was conducted in conjunction with the signing of the Global Compact – an initiative being spearheaded by UN Secretary General Ban Ki-moon.
In 2006, BEST Forum developed the “BEST Sustainability Report (BSR) Guideline,” which was adopted by the Ministry of Commerce, Industry and Energy (MoCIE).
1. INTRODUCTION OF “BEST FORUM”
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1) Domain: Production facility + Employees + Consumers + Society + Environment
2) Reporting system: A double-entry method using content and process as two dimensions
3) Compatibility with other guidelines: Inclusive of GRI guideline
4) Time scope of reporting: covering both the past and future of a firm
5) Focus: on the causes and results more than investment itself
6) Method of reporting: quantification of soft-objectives
7) Reporting standard: 5-phase approach depending on complexity of management
8) Report auditing: objective auditing by an external institution for quality assurance
2. CHARACTERISTICS OF BSR
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3-1. A NEW DOMAIN IN THE “BSR” GUIDELINE
EnvironmentEmployeeProd. facility SocietyConsumer+ + + +
+ +
Creativity management
Environmentmanagement
Existing management
Customer management
CSR management
Ethics management
Innovation management
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[0] Economic management that pursues financial performance (profit),
[1] customer management that pursues customer performance (brand value),
[2] CSR management that pursues social performance (reputation),
[3] environment management that pursues environment performance (green value)
are the content of management, and
[0] Existing management,
[1] ethics management,
[2] innovation management,
[3] creativity management
are the process of management.
3-2. REPORTING SYSTEM: THE DOUBLE-ENTRY METHOD
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THE DOUBLE-ENTRY METHOD
-Customer satisfaction-Enhanced customer value-Brand management
[1]Customer management that pursues customer performance (brand
value)
[1]Ethics management
[3]Environment
management that pursues environment performance (green
value)
[2]CSR management that
pursues social performance (reputation)
[0] Economic management that pursues financial performance (profit)
Process
Content
-Raw materials-Energy, water-Biodiversity-Emission
- Labor and human rights-Society-Product responsibility
-Customer-Supplier-Employee-Capital provider
(3)Creativity
management**
(2)Innovation
management*
[0] Existing management
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Innovation management
Ethics management
CSR management
Environment management
Creativity management
BSR
Profile
Economic performance
Social performance
Environmental performance
GRI
CSR
Eco-efficiency
Innovation &Technology
Ecosystem
Risk
WBCSD
SD & Market
In addition to the elements covered in existing global sustainability reports, BSR analyzes elements such as innovation management and creativity management, and thus contribute to the assessment of the future value of a business
* WBCSD: World Business Council for Sustainability Development
3-3. COMPATIBILITY WITH OTHER GUIDELINES
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The BSR analyzes the past, the present and the future activities and performances of an enterprise
Innovation management
Ethics management
CSR management
Environment managementCreativity
management
Past Present Future
3-4. TIME SCOPE OF REPORTING
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BSR attempts to identify the results of sustainability management as well as its causes and performance
CEO
Internal resources
Business environment
Investment in sustainability management
Performance of sustainability management
Input Process Output
Existing method
BEST Sustainability Report
3-5. FOCUS: ON CAUSE AND EFFECTS
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Framework of BSR:
GRI is used as the guideline for sustainability management activities but tends to focus on investment in mechanism (system). To complement the limitation of GRI, BSR includes the subject, environment, resources that impact sustainability management activities
VVLeadership
Ethics management
VVVEnvironmental system/investment
VVVAdded-value activity
VVVVPrincipal activities
VVVVSupplier
VVVVLocal community
VVVVCustomer
VVSocial responsibility leadership
CSR management
VVVVGovernance
VVVVEthics management mechanism
VVEthical leadership
Ethics management
Creativity management
Innovation management VVVVInnovation management
ResultCause
V
Mechanism
VVVCreativity management
PerformanceResources Environment Subject
Elements of GRI Guidelines
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BSR quantifies sustainability performance
1. The ultimate goal of an enterprise is to enhance the corporate value going forward.
2. The goal of sustainability management is also to enhance the corporate value to become a sustainable enterprise.
3. But corporate value must consist not only of profit but also of image, brand, reputation, and long-term competitiveness.
4. These elements that comprise the corporate value, which are currently not within the scope of management of a CEO, need to be quantified in order to become the target of management.
5. These elements can then be converted into an individual criterion, and subsequently integrated to ultimately create a broad and common indicator.
6. BEST Forum is currently developing a sustainability management index for the quantitative assessment of the sustainability management activities of firms.
3-6. METHOD OF REPORTING: QUANTIFICATION OF SOFT OBJECTIVES
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Global indicators are designed for multinational enterprises and therefore may be vast and difficult to apply in certain businesses, whereas BSR guidelines can be applied in a phased manner as according to the phase of the corporate reporting of a business.
Creativity managementCreativity management
Customer
Leadership
Governance
Ethics management system
Ethical leadership
Ethics management
Innovation managementInnovation management
Added-value activities
Ethics management
Principal activities
Environmental system/investment
Leadership
Local community
Strategies
for resolving
the issues
that were
identified in
Level 1~4
and sets a
new goal
Perform-ance
Causes
(Subject,
Environment,
Resources)
MechanismActivitiesSupplier
CSR management
Level 5Level 4Level 3Level 2Level 1Indicators
3-7. REPORTING STANDARD: 5-PHASE APPROACH
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As well as being the source of an investor relations information, a sustainability report also serves as an objective evaluation system
Just as an audit report is produced for an annual report in line with strict accounting principles, a sustainability report also requires an audit reporting system based on objective criteria
BSR proposes a standardized assurance method for sustainability reports for the identification of the level of sustainability management in a business and for the comparison of businessesBSR examines the level of compliance with BSR and GRIBSR offers different reporting phases for businesses in different development stage (phased report validation)BSR offers a grading system that incorporates both materiality & completenessAssures qualitative performances (environment/society/innovation management and creativity management performance)Presents assessment results and proposes measures for improvement (경영권고서한)
BSR is assured through an objective auditing by an external party.
3-8. REPORT AUDITING FOR QUALITY ASSURANCE
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BSR comprises all elements of the economic activities of a business that are not included in
the annual reports
4. DUAL APPROACH IN CORPORATE REPORTING SYSTEM
Past
Future
Internal stakeholder External stakeholder
Annual report
BESTSustainability
Report