CSR trends, strategy, ethics and the business case

1. CSR, Strategy, Ethics and Governance Toby Webb, Founder, Ethical Corpora=on and Stakeholder Intelligence. Lecturer, Corporate Responsibility, Birkbeck, University of London September 2013 Tobias.Webb@stakeholderintel.com Tobiaswebb.blogspot.com

2. What is CSR today? •  CSR is about how you run your business when no-‐ one is watching •  It covers: Ethics, Integrity, Products, Services, Consumers, Investors, An=-‐corrup=on, Suppliers, Tax payments, Market Ethics, Employees, Civil society and the Environment…

3. CSR today = Sustainable Business •  Sustainable business does not happen without strategy •  Strategy does not happen without Governance •  Governance does not happen without Ethics •  Ethics do not happen without Stakeholder Engagement Paul Polman, Unilever CEO

4. Who are some of the leaders? Unilever -‐ Ten year journey towards sustainable growth Applies right across the value chain Responsibility for own direct opera=ons Also for suppliers, distributors and how consumers use Unilever brands Underpinning the Plan are around 60 targets Marks and Spencer Launched Plan A in January 2007, seXng out 100 commitments to achieve in 5 years Now extended Plan A to 180 commitments to achieve by 2015 Ul=mate goal of becoming the world's most sustainable major retailer

5. Who are some of the leaders? General Electric -‐ Eco-‐Innova=on as business strategy EcomaginaBon business unit mainstream focus on business innova=on and sustainable industrial products $2.3 billion invested in “Ecomagina=on” products in 2011 Reduced GHG emissions 30% since 2004 Reduced wastewater by 45% since 2006 2011 -‐ Siemens reorganised opera=ons into four core business units: Energy -‐ eﬃciency in energy produc=on and distribu=on, including oil, gas and renewables Healthcare -‐ supplying technology (medical imaging equipment and healthcare IT) Industry -‐ providing soeware and technology services Infrastructure and ciBes -‐ sustainable technologies (smart grid equipment and rail vehicles)

6. Who are some of the leaders? Golden Agri Resources – A model for sustainable palm oil •  2010 -‐ announced ground-‐breaking deal with The Forest Trust to help prepare for Roundtable on Sustainable Palm Oil (RSPO) cer=ﬁca=on by December 2015 •  Engagement with local NGOs for monitoring of sustainable agriculture implementa=on •  Working with Greenpeace and interna=onal NGOs •  Won back business from Nestle and Unilever: Share price went up! “No deforesta=on” commitment: Now extended to pulp & paper Sister company APP in Feb 2013

7. Why do they choose to lead? Unilever Marks and Spencer General Electric Siemens Golden Agri Resources •  Securing supply •  Customer trust •  Low carbon future •  UrbanisaBon •  Market access

8. How do they engage with stakeholders? •  Dialogue with civil society •  Consul=ng experts on agriculture, trust, ethics. urbanisa=on, climate change, energy futures •  By using guidance and standards •  Listening to their employees •  Watching trends emerge ISO 26000 Guidance ‘Standard’

9. Key guidance for CSR and Sustainability •  ISO 26000 •  Dow Jones Sustainability Indexes •  FTSE4Good Index •  Global Repor=ng Ini=a=ve Guidelines •  OECD Guidelines •  UN Global Compact •  Transparency Int. BUT: Guidance not the whole solu=on: You must study your own Risk and Opportuni=es

10. •  Ten year journey towards sustainable growth with 50 tough targets •  Aim to bring safe drinking water to 500 million people •  2011: Increased propor=on of pornolio that meets highest nutriBonal standards from 22% in 2010 to 25% in 2011 •  Aim: Halve the greenhouse gas impact of products across the lifecycle by 2020 •  2020 aim: Source 100% of agricultural raw materials sustainably •  Sustainably sourced raw materials up from 24% in 2011 to 36% in 2012

11. Unilever: Business Beneﬁts of Sustainability

12. Siemens and Green Business Strategy •  2011: Products and solu=ons in Environmental Pornolio generated revenue of €29.9 billion: 41% of total revenue •  Objec=ve: Grow annual revenue to €40 billion by 2014 –with new, innova=ve products and excep=onal growth in ﬁelds like renewable energy.

13. Siemens and Business Ethics •  Huge corrup=on scandal, resul=ng in $1.6bn in ﬁnes in 2008 •  Company has re-‐organised as a result, beser repor=ng and world class anB-‐ corrupBon processes •  Forced by World Bank to spend spend $100 million on an=-‐corrup=on awareness ini=a=ves world-‐ wide

14. How do these examples link to stakeholder engagement? •  Employee engagement drives innova=on and ideas •  NGO partnerships bring science, experience credibility •  CommuniBes have increasing power & inﬂuence •  Social media means no company escapes scru=ny •  Big business want a long term vision from Governments: And policies and incen=ves that enable investment and longer term planning: So must lead by example

15. Social Media means no escape from the public eye

16. How do CSR and Sustainability improve Business? •  Consumers want to trust brands, not products •  Leading companies turning sustainability into opportunity all over the world: New products / mo=vated people / cost savings •  9 billion people means less resources and innova=on will be essen=al: Sustainability = risk reducBon •  Corporate roles in changing ineﬃcient systems will be vital: The winning companies recognise CSR is systems change •  CSR and Sustainability = Smarter business

17. Harvard Business School Professor Robert Eccles, Harvard Business School

18. Do other companies make money from CSR and sustainability? London Business School & Harvard Business School research: •  Firms with beser CSR performance face signiﬁcantly lower capital constraints •  Beser stakeholder engagement and transparency around CSR performance, are important in further reducing capital constraints •  That the rela=on is driven by both the social and the environmental dimension of CSR "CORPORATE SOCIAL RESPONSIBILITY AND ACCESS TO FINANCE" Available at: h;p://ssrn.com/abstract=1847085

19. Five ways ethics and governance are linked to CSR and Sustainability 1.  CSR and Sustainability cannot exist without Business Ethics 2.  Business Ethics cannot exist without good Corporate Governance. Ethics always begins and ends with leaders 3.  Good Corporate Governance is now seen by interna=onal investors as part of good management by boards 4.  Poor Corporate Governance is priced into share valuaBons by analysts and large interna=onal investors 5.  Good Corporate Governance begins with Rule Compliance

20. Why Transparency Maêrs •  Compliance with interna=onal best prac=ce in Governance and behaviour expecta=ons = The first step to building investor and stakeholder trust – AnB-‐ corrupBon is a vital part of this •  BUT: Compliance alone is not enough! •  Transparency is an under-‐valued method of building trust, both from Markets Lack of transparency affects trust

21. Why Transparency Ma^ers •  Responsible ownership is about being accountable to shareholders •  That’s true for businesses in Indonesia too… •  Fact: Investors reward beser managed (governed) companies! $18 Trillion in Interna=onal Investor Assets

22. Conclusion: Eight Key Steps to Global Ethical Governance 1.  Adopt best pracBce in Interna=onal Corporate Governance 2.  Go beyond Compliance: Develop and integrate Ethics 3.  Lead from the top of the company on Ethics 4.  Use Ethics to build strategy in CSR and Sustainability 5.  Engage employees, partners, suppliers and civil society in strategy and policy development 6.  Use engagement to drive innovaBon in Governance, Prac=ce, Product and Service Innova=on across your business 7.  Embed ethics, CSR and Sustainability into your business every day 8.  Never forget: Ethics, Governance and CSR are how smart business will be done in the 21st Century

23. Engaging Employees: The Business Case •  Employee percep=ons of corporate social responsibility have a major impact on organizaBonal commitment •  Contribu=on of CSR to organiza=onal commitment is at least as great as job sa=sfac=on •  Managers at nine out of ten of the UK’s top 50 best workplaces believe corporate social responsibility aﬀects employees’ moBvaBon, sa=sfac=on and loyalty “9 out of 10 of key barriers to successful change are people related”(PricewaterhouseCoopers)

24. Employee engagement: The numbers •  Engaged employees generate 43% more revenue (Hay Group) •  Disengaged workers costs the UK £44bn a year (IES) and the US between $270bn and $343bn (Gallup) in lost annual produc=vity •  Engaged employees have 2.7 sick days per year, rather than the 6.2 disengaged employees take (Gallup) •  Engaged employees are 87% less likely to leave. (Corporate Leadership Council) •  67% of engaged employees advocate their organisa=ons, compared to only 3% of disengaged employees. (Gallup) •  59% of engaged employees say “work brings out their most crea=ve ideas”, compared to only 3% of disengaged employees. (Gallup) Source: Engaging for Success: enhancing performance through employee engagement, David MacLeod and Nita Clarke, 2009

25. How do leading companies engage employees in Ethics? •  CSR Champions Networks: HSBC, Alliance Boots, Reed, Accenture, PWC, Novo Nordisk •  Embedding in job func=ons: At Nike, ethics and environmental issues co-‐managed by head of CR and relevant heads of department. Nike: Head of compliance reports to both head of CR and head of all sourcing

26. Lessons from Novo Nordisk: Appraisals and the balanced scorecard •  Novo Nordisk Employee appraisal system called 3P: People, Performance, Process •  Includes financial and non-‐financial targets •  Included in staff appraisals, twice a year. At the end of each full year, total performance scores based on performance against CSR targets •  Wide variety of issues included in Novo Nordisk’s balanced scorecard: Those used depend on job func=on Novo: On qualita=ve measures assessment is made by direct line managers

27. How leading companies engage CEOs and the board on sustainability •  Link CSR/Sustainability with corporate governance best pracBce: managing risk/providing investor re-‐assurance •  Cost savings: From opera=ons and the supply chain AND the value for reputa=on •  Real life examples of how managing CSR issues beneﬁts business •  Take them into the supply chain! Present industry best prac=ce to the board: Talk about winning

28. Embedding CSR: Six Phases •  Phase 1: INSIGHT -‐ stakeholder views, science based understanding of issues, benchmark of compe=tors and peers •  Phase 2: Public commitment of the “headline goal” – reducing carbon by 30%, reducing injuries •  Phase 3: Establish a baseline for today

29. Embedding CSR: Six Phases •  Phase 4: AllocaBng responsibility for acBon, the business must own the baseline, own the target and own the achievement •  Phase 5: Public reporBng of progress. Revisit what you said you’d do, create the sense of con=nuity and recommitment •  Phase 6: Transparently revisit and challenge the original goal

30. Key lessons for Governance •  Clarify CR roles and responsibiliBes at board level, CR champion on the board, board-‐level commisee •  ArBculate CR strategy clearly, reﬂec=ng board responsibili=es and accountabili=es. Put it in the mission! •  Encourage frank exchange and engagement at senior levels •  Avoid delegaBon of cri=cal decision-‐making that senior leaders need to make •  Join-‐up high-‐level communicaBons, linking to the company’s CR goals, objec=ves and strategy

31. Conclusions: Embedding CSR •  Champions and cheerleaders are cri=cal: Don’t “outsource” responsibility for CR issues: Manage internally •  Don’t try to eat the elephant all at once: A bite at a =me. Your road map is an invaluable tool.

32. Conclusions: Embedding CSR •  Share stories and skills: Find ways to enable peer-‐ to-‐ peer learning and mentoring •  Avoid the complacency trap: Ethics/CR isn’t something that can be “done” and lee on a shelf – it’s a con=nual part of risk management and market crea=on… More informa=on: An 80 page management Report on Embedding CSR from; hsp://reports.ethicalcorp.com/reports/

33. Thank you!

CSR trends, strategy, ethics and the business case

Innovation Forum Publishing

CSR trends, strategy, ethics and the business case