Ethical Corporation Dec-January 2012 Extracts

Corporate reputationTransparency is the answer

Alternative vehiclesIs liquid nitrogen the low emission solution?

Nike Sustainable can be cool

December 2012 – January 2013 www.ethicalcorp.com

The year that climate change hit Manhattan

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ContentsEthical Corporation • December 2012 – January 2013 3

Contents

Strategy and management

35 Sustainability commercialisedNike’s big steps forward

38 EssayNature’s business solutions

41 China columnPaul French has high hopes for China’s newpremier

Review

42 Report: Microsoft

43 Report: Symantec

44 New books

45 Academic news

People

46 RecruitmentSector that bucks the trend

48 People on the move

50 Toby WebbGive reporting some glitz

5 From the editor

EthicsWatch

6 HSBCBattered and bruised

7 Emissions tradingAviation cut out

8 People traffickingUS toughens stance

9 Wind energySo much potential

10 Mallen BakerOptions for GRI

Review of the year

12 2012’s ups and downs

16 2013’s potential

19 Peter KnightAmerican voters explained

20 CRwatchHow Sandy brought out the best

p11 Looking back, looking forward

p35 Sustainable products people want

p27 Business bashing

p22 Are there new alternatives?

22 Alternative vehiclesElectric cars left behind

24 Cheat sheetInsight and analysis distilled

26 NGOwatchWater risks addressed

Briefing: corporate reputation

28 Stakeholders, crises and bad management

32 Transparency and disclosure that works

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From the editor 5Ethical Corporation • December 2012 – January 2013

Welcome to the December 2012 – January 2013 issue

It’s been quite a year. As ever, the focus for our final issue of2012 is to reflect on the events of the past 12 months, andtry to analyse where the progress has been made and wherethe new challenges have come from.

While many parts of the world have for some time beenexperiencing seemingly more-frequent extreme climateevents, there’s no doubt that Hurricane Sandy sweepingthrough the eastern United States in the autumn focusedattention on the issue. Ironically – and despite a severedrought this year in many crucial grain growing regions else-where in north America – climate change was hardlymentioned for much of the US presidential election. It reallywas all about the economy (stupid), despite the fact, of course,that climate impacts may well be the most serious economicissue over the coming years.

Is the game up already? As Penny Shepherd, chief execu-tive of UKSIF says in our 2012 review, this past year may wellbecome regarded as the time when everyone involved in theclimate debate concluded that the 2C “safe” temperature risetarget that the UN’s climate panel have set is in practiceunachievable.

We’ll review next time how far the Doha climate talksaddressed these thorny issues. But, one thing the expertsfrom the Ethical Corporation advisory panel agree on is thatbusiness is taking the lead on the climate and other sustain-ability matters that are so pressing. Chris Wille from theRainforest Alliance sums it up well, pointing out that as we allshare the responsibility for a sustainable future, everyone hasto do something.

There are no surprises that, increasingly, the companiesthat are seen to be doing their share are also winning in termsof corporate reputation, the focus of this issue’s managementbriefing. In the age of interconnected stakeholders and smart

activism, which carefully and effectively identifies corporatetargets, companies need to be nimble and engaging. Theyneed to demonstrate that they know where their corporatebehaviour needs improvement, and that they are doingsomething about it. Transparency is the key, of course, and anability to accept there are problems – and that there will be inthe future. And as the recent corpo-rate tax scandals – not leastinvolving Starbucks – show, simplyoperating within the law is oftennot enough.

Elsewhere this time we examinethe future for electric vehicles, andexplore some potentially muchbetter alternatives. And in the nextof our sustainability commercialisedseries, we focus on Nike’s leader-ship in the apparel and footwearsector in the drive for radically more sustainable products. Inaddition we have reviews of the latest reporting fromMicrosoft and Symantec, and the usual roundups andanalysis from our columnists.

We’ll be back with our February issue. Until then, manythanks from all of us at Ethical Corporation for your feedbackand support during 2012, and best wishes for a successful2013.

Ian Welsh Editor

Contributors: Rob Bailes, Oliver Balch, Mallen Baker,

Jeni Bauser Yaghoubi, Elaine Cohen, Jon Entine,

Paul French, Stephen Gardner, Phoebe Hayes,

Giles Hutchins, Peter Knight, Claire Manuel, Sam Phipps,

Rikki Stancich, Toby Webb

Publisher: Toby [email protected]

Editor: Ian [email protected]

Contributing editor: Mallen Baker

Sub editors: Sarah Burton, Gareth Overton

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6 EthicsWatch Ethical Corporation • December 2012 – January 2013

Banking boostBritain’s Green Investment Bank hasopened for business. The Edinburgh-based GIB officially opened its doorsat the end of November, with initialstate backing of £3bn. The bank hasalso made its first investment, placing£8m into a project to constructBritain’s biggest anaerobic digestion

plant (for conversion of waste intobiogas), in Teesside. The bank’scontribution is matched by £8m inprivate funding. The GIB will “placethe green economy at the heart ofour recovery and position the UK atthe forefront of the drive to developgreen energy”, according to businesssecretary Vince Cable. Some of thebank’s powers, including its freedomto borrow from the capital markets,remain to be clarified, however.

Sweet successThe self-declared “pre-eminentplayer in global snacking”, MondelezInternational, formerly known asKraft Foods, and the owner of brandssuch as Cadbury’s, has celebrated thelaunch of its new name with a planto invest $400m over 10 years in aCocoa Life sustainability programme.The scheme will help cocoa farmers,especially in Ivory Coast, where$100m will be invested to double theproductivity of 75,000 smallholders.Money will also be spent on commu-nity, youth and environmentalprojects. Cocoa Life is the scaling upof the Cadbury Cocoa Partnership,which has run projects in theDominican Republic, Ghana andIndia. In Ghana, it helped partici-pants increase their householdincomes by 200%, according to thecompany. “It’s about empoweringcocoa communities,” Mondelez seniorvice-president Bharat Puri says.

EthicsWatchBy Stephen Gardner

HSBC under fire, aviation cut from EU emissions trading, US people trafficking rules tightened and the wind power dilemma

Analysis: HSBC

‘World’s local bank’accused overlogging clients

By Rob Bailes

Embattled British bank HSBC finds itselfembroiled in yet another scandal

Just when you thought things couldn’t getany worse for HSBC, a report published byGlobal Witness in November accuses the Britishfinancial giant of bankrolling unsustainablelogging companies in Sarawak, Borneo.

According to the Global Witness investiga-tion, a number of HSBC’s Sarawak clients havebeen engaging in illegal logging and unethicalpractices, violating the bank’s 2004 forest

policy – and earning it $130m. HSBC’s 2004 forest policy required the bank

to drop clients unlikely to achieve Forest Stew-ardship Council or equivalent certification for70% of their operations, by 2009. GlobalWitness says that as of 2012, none of HSBC’sSarawak forestry clients analysed in the reporthold an FSC or equivalent certification, repre-senting a 100% compliance failure over aneight-year period.

Responding to Ethical Corporation, the banksays that “99% of our customers in the forestrysector are compliant or near compliant with ourpolicy” and that it is ending its relationshipswith the “remaining 1%”.

Tom Picken of Global Witness says: “HSBChave tried to deflect the seriousness of this bystating almost all of their clients are ‘compliantor near-compliant’. They won’t, however,explain what ‘near-compliant’ means.”

Global Witness suggests that while HSBC’sforest policies are more progressive than thoseof other banks, it has failed to monitor andimplement those policies.

Picken adds: “It is deeply disappointingthat HSBC have still not agreed to a meetingwith Global Witness at a level higher thansimply fielding HSBC’s sustainability people –this suggests they are not taking these mattersseriously.”

A new low The Global Witness report represents a newnadir for the embattled bank. In July 2012, a 12-month US Senate investigation found thatHSBC’s compliance culture had been “perva-sively polluted for a long time” after years of poor anti-money-laundering controls allowed billions of dollarsto be laundered through its US and Mexicanbanking operations.

A Senate subcommittee concluded HSBChad “exposed the US financial system to moneylaundering, drug trafficking, and terroristfinancing risks” through a systematic failure toenforce internal controls. HSBC says: "We areactively engaged in discussions with US author-ities to try to reach a resolution, but there is notyet an agreement."

The bank is currently preparing itself forfines from the US authorities that could reachas much as $1.5bn – one of the largest everimposed in the financial services industry. Forcomparison, Standard Chartered recentlyreceived a fine of $340m from US regulators forits alleged role in illegal banking transactionswith Iran.

If money laundering and bankrolling ofunsustainable logging companies weren’tenough, last month HSBC also found itselflooking into evidence that criminals and taxevaders were using offshore accounts at itsJersey operations following a leak from awhistleblower.

While it is not the responsibility of the bankto police the tax affairs of its account holders,HSBC shareholders, regulators and the publicwill surely be very concerned. �

Stakeholders kept in the dark

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Green bank will boost energy, says Cable


EthicsWatch 7Ethical Corporation • December 2012 – January 2013

Gender balanceAt least 40% of non-executive board-member positions in European Unionpublicly listed companies should goto women, the European commis-sion says. Under proposals publishedin mid-November, the quota wouldhave to be met by 2020. Commissionvice-president Viviane Reding says 11EU countries, including France, Italyand Spain, have introduced somekind of rule on gender balance inboardrooms, and other countriesshould follow suit. However,although it would be binding forcountries to take measures to meetthe goal, no sanctions would beapplied to companies missing thetarget if it could be shown thatsuitable candidates were not avail-able. The proposal must surviveexamination by the European parlia-ment and EU member stategovernments before becoming law.

Local tariffs for localpeoplePeople living close to wind farmsmight have less of a not-in-my-backyard attitude if they receive abonus via their electricity tariff. GoodEnergy, which provides renewablepower, is offering a 20% discount to

people living within 2km of its windfarm in Delabole on the north Cornishcoast, in southwest England. Thescheme is the first of its kind,according to the company. An extrabonus depending on how much elec-tricity the wind farm produces couldbring the net benefit for local resi-dents up to £150 a year. The local tariffwould “put renewables at the heartof the community,” says Good Energychief executive Juliet Davenport.

Analysis: international aviation

Aviation fallsfrom emissionstrading scheme By Rob Bailes

The ICAO has a year to come up with aframework for aviation emissions, as theEU suspends international flights from itstrading scheme

In November the European commissionunexpectedly announced it would freeze theapplication of the EU emissions tradingscheme to non-EU flights for a year.

According to climate commissioner ConnieHedegaard, the decision by the EU will enablethe International Civil Aviation Organisation(ICAO) time to develop a global framework fora market-based emissions reduction schemerelevant to international aviation.

Industry experts say the EU’sclimbdown is a result of pressurefrom aircraft manufacturers andoverwhelming global oppositionto the EU’s decision to pull inter-national aviation into the EU ETS.

Countries such as China, Indiaand the US have consistentlyopposed the EU ETS decision onthe grounds that any agreementon international aviation emis-sions must be global and comethrough ICAO.

Most recently, a new US lawwas enacted that shields USairlines from the EU ETS. Whilethe move will have no immediate effect in lightof the EU’s decision it could affect future rela-tions between the US and EU, should ICAO failto develop and agree a global framework.

According to the Aviation EnvironmentFederation, opposition to the EU ETS has beenone of political principle rather than anyfundamental rejection of the scheme itself.

“Disquiet towards the EU’s decision is notso much based on how it will impact in termsof cost, but more in terms of the principle –that the EU was looking to impose measuresbeyond its borders,” says Cait Hewitt, deputydirector of the federation.

Environmental groups have tentativelywelcomed the decision as positive. Accordingto Vicky Wyatt of Greenpeace UK, the EU ETSwas never a panacea to the problem of inter-

national aviation emissions. “Our concern wasthat by putting international aviation into theEU emissions scheme, policy-makers wereputting off difficult political decisions aroundUK airport capacity and expansion,” saysWyatt.

There is, however, scepticism that ICAO candeliver. “The track record of ICAO in terms ofdelivering real emissions reductions is poor,”adds Wyatt. “That’s why aviation needs to bepart of a global deal.”

Stung into action Addressing greenhouse gas emissions frominternational aviation has long been aheadache for international policy-makers.Excluded from the 1997 Kyoto protocolbecause of difficulties in determining how toallocate emissions to different countries,responsibility for reducing emissions hasinstead rested with the ICAO.

Now, ICAO appears to have been pressuredinto action. In mid-November it announced

the formation of a special high-level groupcharged with investigating the feasibility of aglobal market-based measure and a globalpolicy framework to guide its application.

According to ICAO’s secretary-general,Raymond Benjamin, a draft resolution on aglobal policy framework will need to beproduced in time for the organisation’s annualgeneral assembly in September 2013. Putting inplace a global market-based scheme may takemuch longer, however.

“We don’t have to come to that generalassembly with a global scheme. We have tocome with a global framework and an answerto the question about the feasibility of a globalscheme,” says Benjamin. “The objectiveremains carbon-neutral growth of the aviationindustry by 2020.” �

Can aviation avoid a bumpy landing?

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Local generation can turn back the clock

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8 Ethical Corporation • December 2012 – January 2013EthicsWatch

Prototype publishedIntegrated reporting of financial andnon-financial results has come a stepcloser according to the InternationalIntegrated Reporting Council (IIRC),which has published its “prototype”framework. Paul Druckman, the IIRCchief executive, says the prototypeframework will help companies diptheir toes in the waters of integratedreporting. “We are encouraging busi-nesses to start testing the principlesof integrated reporting and evalu-ating their relevance andapplicability,” he says. Feedback iswelcome, though the prototypeframework is not part of the IIRC’sformal consultation process. The finalframework is expected at the end of 2013.

Adding fuel to the fireThe European commission has infu-riated environmental groups bylisting as “sustainable” palm oilcertified by the Roundtable onSustainable Palm Oil (RSPO). Thelisting means that biofuel producedfrom RSPO palm oil can counttowards a legally binding European

Union target for 10% of transportfuels to come from renewable sourcesby 2020. Friends of the Earth andGreenpeace say that the decisionamounts to “greenwashing” of palmoil, the production of which can drivedestruction of tropical forests as areasare cleared for plantations. The RSPOsays the decision was “critical inmaking real progress towards thesupply and demand of sustainablecommodities” and that certified palmoil does not “contribute to thesustained destruction of valuabletropical forests”.

Analysis: supply chains

Anti-traffickingmeasures go federal

By Sam Phipps

While the US government is targetinghuman trafficking, companies must takeultimate responsibility for their supplychains

Anew executive order from the US presi-dent, Barack Obama, requires all US

government contractors and subcontractors toensure they do not engage directly or indi-rectly in forced labour. The measures mirrorlaws passed in California two years ago withthe purpose to “provide consumers with infor-mation regarding [companies’] efforts toeradicate slavery and human trafficking fromtheir supply chains”.

“Our fight against human trafficking is oneof the great human rights causes of our time,”Obama said, announcing the order shortlybefore his re-election. More than 20 millionpeople around the world are ensnared in traf-ficking, according to the White House.

The executive order reinforces an existingzero-tolerance policy on trafficking in govern-

ment contracting and requires compliancemeasures for overseas contracts and subcon-tracts of more than $500,000. These include anemployee awareness programme, a process toreport violations without retaliation, andrecruitment and housing plans.

Obama has pledged more training andguidance to federal prosecutors, law enforce-ment officials and immigration judges, as wellas to commercial transportation officials, stateand local law enforcement partners and state

workforce agencies and educators.This would help ensure that “victims are

always treated as victims and not criminals,”he said.

Now for action Human rights NGO Stop The Traffik haspraised Obama’s adoption of the Californialaw on a federal level but cautions againstcomplacency.

“It is excellent that anti-human trafficking ison top of the agenda for President Obama, asthis will inspire others to also make it apriority,” says Jantine Werdmuller von Elgg,global project officer at Stop The Traffik.

But she argues that putting legislation inplace won’t necessarily bring about change. “Itis only employees taking action in a companythat will disrupt the global trade in people.”

Von Elgg also cites imminent UK legislationthat has much the same thrust as the US law.The proposed Transparency in UK CompanySupply Chains (Eradication of Slavery) Bill isexpected to resume its second reading debatein January 2013.

Obama also announced more resources forservices and legal assistance to victims of traf-ficking, including the launch of $6m in specialawards – with support from the GoldmanSachs Foundation – for local communities todevelop collaborative and comprehensivesolutions to help trafficking victims.

Laurel Bellows, president of the AmericanBar Association (ABA), also welcomes the exec-utive order and says she expects a uniform lawagainst trafficking to apply in the US from nextJuly or August 2013, covering the wholeprivate sector as well as the state.

More than 100,000 US citizens are in slaverytoday, and that excludes “tens of thousands ofmen, women and children who are broughtover our borders and subjected to captivity forsex or labour for the profit of their captors,”Bellows says.

In Chicago alone 16,000 underage girls areforced into prostitution each year, thoughSeattle and Atlanta are the main hubs, Bellowssays.

“We have to make certain that every singleemployer in this country incorporates into ahandbook or short presentation a basic planfor all employees to sign off when they joinand at the end of every year: how do youidentify a victim and what’s the hotlinenumber to call if you think you have.”

Bellows concluded: “Americans have tounderstand that they all have a job they can doon this issue.” �

Officially zero-tolerant on people trafficking

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9EthicsWatchEthical Corporation • December 2012 – January 2013

Deforestation downSome rare environmental good news:the rate of Amazon deforestationwas down 27% in the year to 31 July2012, and the lowest rate sincerecords began in 1988. Andre Correado Lago, Brazil’s head negotiator atthe United Nations climate conference

in Doha, Qatar, says measures to curb illegal logging had had animpact, and that emerging countriescould do more on deforestation andother carbon-related issues if richnations provided more funding,including to address poverty. Despite the improvement, more than 4,600 square kilometres of the Amazon rainforest was lost in2011-12, an area nearly twice the size of Luxembourg.

How to avoid corruptionExecutives hoping to avoid large finesor even prison sentences should theyget caught up in corruption in foreigncountries should read a 120-pageguide to the United States ForeignCorrupt Practices Act, publishedrecently by the US government. Theguide includes case studies, detailson the scope of anti-bribery provi-sions, definitions of terms such as“corruptly” and “wilfully”, defencesthat might be accepted and thepenalties that might apply to wrong-doers. Because of the damage doneby corruption, enforcement of theForeign Corrupt Practices Act is a“continuing priority at the Depart-ment of Justice and the Securities and Exchange Commission,” theguide said. The act’s provisions canextend to non-US, as well as US,companies.

Analysis: wind power

Blowing hot andcold By Rikki Stancich in Hong Kong

More commitment to wind power couldmean hitting global emission reductiontargets. But it’s looking unlikely

November was an important month forclimate change mitigation. The Interna-

tional Energy Agency made a historic first,initiating dialogue on climate change. Itadvises that to achieve the goal of keeping anyglobal temperature rise to 2C, only one-third ofproven reserves of fossil fuels can beconsumed before 2050.

All eyes then turned to COP 18 in Doha,and the UK’s Department of Energy andClimate Change’s long-awaited energy bill.The latter signals a switch away from coaltowards nuclear and renewables, particularly wind, but with consumers facinghigher bills to pay for new power installations.

With the window of opportunity to stave off runaway climate changenarrowing, the stakes are higherthan ever. Even so, “the politicsdon’t look very good”, says thelatest Global Wind EnergyOutlook (GWEO) report.

To rein in climate change,annual global emissions mustbe pared down from the IEA’s2020 business-as-usual scenarioof 56bn tonnes of CO2, to a44bn tonne goal. Today,however, there is already a“gap” of 10bn tonnes of CO2per year between currentconfirmed national emissionreduction targets and that 2020 goal.

“Even if the pledges made inCopenhagen and confirmed in Cancún aremet in full, a gap of 6bn tonnes per yearremains,” notes the GWEO report. Meanwhile,global emissions continue to rise.

Unless market corrections such as efficientcarbon pricing and removal of fossil fuel subsi-dies are made now, the current opportunity tocontain global warming will be missed,according to IEA projections.

However, governments continue to backthe wrong horse. Subsidies to fossil fuels arenow 30% higher than in 2010 and six times theamount received by renewables, according to

the IEA. If these subsidies were removedtoday, greenhouse gas emissions would be 6%lower by 2050 (according to OECD analysis),and renewables such as wind and concen-trated solar power would be cost competitivewith, if not cheaper, than coal and gas, saysGreenpeace’s renewable energy expert, SvenTeske, a co-author of the GWEO report.

Within reachAccording to the report, the power sector isresponsible for more than 40% of all CO2 emis-sions from burning fossil fuels, and about 25%of total greenhouse gas emissions. This makesa compelling case for installation of renewableenergy generating capacity.

With political commitment, the 2030 emis-sions goal can be met and even exceeded,stresses the report. In a best-case scenario,wind energy could meet roughly 24.8% of totalelectricity demand.

Since 2009, however, growth in the windsector has slowed significantly. According tothe report, “recession in most of the OECD, thelack of EU ambition to ‘fix’ its emission tradingsystem, fickle policy in the US and elsewhere”,

have undermined the sector’s growth poten-tial, according to the GWEO report.

Growth is likely to pick up again around2014. But the Global Wind Energy Council’ssecretary-general, Steve Sawyer, argues it isunlikely that the best-case scenario can beachieved. Instead, he says it is more likely that760GW will be installed by 2020, meeting 8.3%of electricity demand, with annual CO2savings of around 1bn tonnes. As the reportconcludes, this is “not sufficient for windenergy to play its full part in combating theclimate crisis”. �

Still untapped potential SH

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