Sustainability Book

7/31/2019 Sustainability Book

1/118

Sustainability Reporting


2/118

The Institute of Chartered Accountants of India All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any

form, or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior permission, in writing, from the publisher.

Disclaimer:

The views expresses in this book are those of author(s). The Institute of Chartered Accountants of India may not necessarily subscribe to the views expressed by the author(s).

The

information

cited

in

this

book

has

been

drawn

from

various

sources. While every effort has been made to keep the information cited in this book error free, the Institute or any office does not take the responsibility for any typographical or clerical error which may have crept in while compiling the information provided in this book. Further, the information provided in this book are subject to the provisions contained under different acts and members are advised to refer to these relevant provisions also.

Edition : January 2012

Committee/ Department

:

Committee

for

Members

in

Industry

Email : [email protected]

Website : www.icai.org

Price : Rs. 100 (including CD)

ISBN : 978 81 87080 67 1

Published by : The Publication Department on

behalf

of

the

Institute

of

Chartered Accountants of India, ICAI Bhawan, Post Box No. 7100, Indrapastha Marg, New Delhi 110002.

Printed by : Perfact Impression Pvt. Ltd.

New Delhi 110003

January/2012/010 copies


3/118

Contents

Foreword i

Preface iii

List of Abbreviations 1

Glossary of Terms 3

Executive Summary 7

1. Sustainable Development : Evolution,

Concept and Meaning 13

2. Sustainable Development and Business 19

3. Principles and Practice for Sustainable

Development Approach 41

4. Sustainability Reporting 47

5. Global Trends in Sustainability Reporting 63

6. Assurance for Sustainability Reporting 67

7. Relevance of Sustainability Reporting in India 75

8. Sustainability Reporting Awards 83

9. The Way Ahead 89

Appendices

Appendix 1 105

Appendix 2 106

References 109


4/118


5/118

Foreword to the Fourth Edition

Sustainability

reporting

is

a

process

for

publicly

disclosing

an

organizations economic, environmental and social performance. Many companies find that financial reporting alone no longer satisfies the needs of shareholders, customers, communities and other stakeholders for information and overall organizational performance. Therefore, companies have started to report on their triple bottom line to describe social, environmental and financial accounting.

Generally sustainability report of companies comprises of information on how a company , proactively and beyond

regulation, acts responsibly towards the environment around it and works towards equitable and fair business practices and brings products and services with lower impacts on the natural environment . Such a report describes how a company has implemented a greener supply chain and has engaged with local communities and is helping in tackling the climate change issues or is innovating for the poor.

I am happy to note that Committee for Members in Industry is coming up with the revised edition of booklet on Sustainability

Reporting.

This

book

is

just

a

perfect

tool

that

provides

you

with

the requisite information wherever and whenever required. Committee has taken every effort to include relevant piece of information and all pertinent knowledge bytes pertaining to sustainability reporting.

I acknowledge the efforts put in by all the members of the Committee for Members in Industry in revising this book.

I am sure that this book will prove to be immensely beneficial to various stakeholders, members of the profession and other

readers.

Date: February 8, 2012 With best regards

Place: New Delhi CA. G. Ramaswamy

President, ICAI

i


6/118

ii


7/118

Preface to the Fourth Edition

Environmental and social management has now become an

integral part of business operations. With organisations adopting a more systematic approach to managing, measuring and reporting on social and environmental performance, the trend towards greater accountability and voluntary disclosure is gathering pace.

A sustainability report provides a balanced and reasonable representation of the sustainability performance of the reporting organization, including both positive and negative contributions. Corporate sustainability reporting has a long history going back to environmental reporting. Global Reporting Initiative defines

Sustainability

Report

as

the

practice

of

measuring,

disclosing,

and

being accountable for organizational performance while working towards the goal of sustainable development.

Sustainability reporting is generating considerable interest around the world and is becoming one of the basic criteria for judging the social responsibility of organizations. Companies are issuing Sustainability Reports to enlarge the scope of conventional corporate financial reporting. The report helps them ensure transparent communication and engagement with their stakeholders in respect to the company s sustainability

performance. It has become imperative for the companies to have stakeholder engagement due to the growing awareness of the stakeholder because of the easy and speedy access to information. The stakeholders like government agencies, employees, investors, financial institutions, community, NGOs, consumers, etc. have become more demanding and ask the company to disclose information on its social, environmental and economic impacts. Sustainability Reporting is also of benefit to the company internally by helping it identify and address business risks and opportunities

I acknowledge the efforts put in by Mr. Vijay Kapur, Director, Board of Studies in updating this booklet. I also acknowledge the efforts put in by the members of the Committee for Members in Industry and the Secretariat of the Committee for Members in Industry.

Date : February 8, 2012 CA. K. Raghu Place: Bangalore Chairman,

Committee for Members in Industry

iii


8/118

iv


9/118

1

List of Abbreviations

BHEL Bharat

Heavy

Electrical

Limited CEO Chief Executive Officer CERES Coalition for Environmentally Responsible Economics

CSR Corporate Social Responsibility

DRL Dr. Reddys Laboratory

GASS Generally Accepted Assurance Standards for Sustainability

GRI Global Reporting Initiative

IASB International Accounting Standards Board IAASB International Auditing and Assurance Standards

Board IAP Indoor Air Pollution ICC International Chamber of Commerce

IFAC International Federation of Accountants

ILO International Labour Organisation ISAE International Standard on Assurance Engagement

LCA Life Cycle Analysis LPG Liquid Petroleum Gas

NEPAD New Partnership for Africas Development

NGO Non Government Organisation

RFP Request for Proposal

SEBI Securities Exchange Board of India

TAP Take Action Programme

UN United Nations

UNDP United Nations Development Programme

UNEP United Nations Environment Programme

WBCSD World Business Council for Sustainable Development

WGBI Welcomgroup Bay Island

WHO World Health Organisation

WTO World Trade Organisation


10/118

2


11/118

3

GLOSSARY OF TERMS

AccountAbility

An international membership

organisation committed to enhancing the performance of organisation and to developing the competencies of individuals in social and ethical accountability and sustainable development.

Additional Indicator An indicator used at the discretion of the reporting organisation to enrich a report.

Coalition for Environmentally Responsible Economies

It is non profit organisation based in the U.S. comprising investors, environmental, religious and public interest groups to promote investment policies that are environmentally, socially and financially sound.

Core Indicator An indicator in accordance with the GRI guidelines.

Dow Jones Sustainability Index

It is cooperation of Dow Jones Index. STOXX Ltd. and SAM Group to provide benchmarks for the financial products that are linked to economic, environmental and social criteria.

Global Reporting Initiative (GRI)

GRI was convened in 1997 by a Coalition for Environmentally Responsible Economics (CERES) in

partnership with the United Nations Environment Programme (UNEP) and was established to elevate sustainability reporting practice to a level equivalent to those of financial reporting, while achieving comparability, credibility, rigour, timeliness and verifiability of reported information.


12/118

4

Good Corporation An accreditation scheme for socially responsible business launched in 2001 as a for profit company based

in the U.K. to provide means for organisations to develop and enhance responsible management practices.

Green House Gas Emissions

Gaseous pollutants released into the atmosphere through the burning of fossil fuels and through other avenues that amplify greenhouse effect which is widely accepted as the cause of global climate change.

Indicators A measure of performance, either qualitative or quantitative.

Indicator aspects The general types of information that are related to a specific category such as energy use, child labour etc. and may have several aspects.

Indicator categories The broad areas are groupings of economic, environmental, social issues of concern to stakeholders

International Chamber of Commerce

Founded in 1990, it aims to serve world business by promoting trade and investment, open markets for goods and services and free flow of capital. It is the voice of world business championing the global economy as a force for economic growth, job creation and prosperity.

Life Cycle Analysis A detailed examination of the full lifecycle of a product, processes,

system and function. For example in case of manufactured product, a lifecycle analysis involves collecting detailed measurement during the manufacture of the product, from the extraction of the raw materials used in its products through to its use, possible reuse or recycling and eventual disposal.


13/118

5

Products and Services Both physical and non physical products and services such as loans, investments and other financial instruments.

World Business Council for Sustainable Development

A coalition of 175 international

companies united by a shared Commitment to sustainable development through three pillars : economic growth, ecological balance and social progress. It aims to provide business leadership as a catalyst for change towards sustainable development and promote the role of eco efficiency, innovation and corporate social responsibility.


14/118

6


15/118

7

EXECUTIVE SUMMARY

SUSTAINABLE DEVELOPMENT: CONCEPT

The earth is finite and has only a certain limited capacity. Hence, growth can only occur over a limited period, until that capacity is enhanced. This gives rise to the idea of sustainable development. Simply put, sustainable development implies development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs.

Many cultures over the course of human history have recognized the need for harmony between environment, society and economy. In 1983, the United Nations had set up an international commission to resolve the conflict between the interests of economic development and the interests of environment, that has created problems round the world. The commissions report, Our Common Future, popularly known as The Brundtland Report (following the name of its chairperson Gro Harlem Brundtland) that coined the term sustainable development suggested that economic development cannot stop, but it must change course to fit within the earths ecological limits. The report observed that unintended changes are occurring in the atmosphere, in soil, in water, among plants and animals. Nature is bountiful but it is also fragile and finely balanced. There are thresholds that cannot be crossed without endangering the basic integrity of the system. The commission alerted that today we are close to many of those thresholds.

Sustainable development thus focuses on improving the quality of life for all of the earths citizens without increasing the use of natural resources beyond the capacity of the environment to supply them indefinitely. The quality of future human activity and development is increasingly dependent on maintaining

balance

between

continued

economic

and

social

development

without detriment to the environment and natural resources.

ROLE OF BUSINESS IN SUSTAINABLE DEVELOPMENT

The business and industry sector has a significant role in promoting sustainable development.

Business must make money; and staying in business and prospering is a fundamental value of any for profit enterprise. At the same


16/118

8

time, business is required to take into account the interests of all stakeholders that include customers, employees, investors, vendors, government and the society.

The late 1990s and early 2000s were turbulent periods for the global investment community, with vast amount of shareholder wealth being created and destroyed. Both the institutional and retail investors have learnt some painful lessons, re examined their assumptions about what constitute tangible and intangible value, and broadened their scope to consider characteristics that could lead to long term financial success.

One area of corporate performance that has begun to capture the attention of investment professionals is sustainable development:

a

set

of

responsibilities

that

contributes

directly

to

an

organisations

risk management profile and is sometimes also linked with corporate responsibility.

There is considerable evidence that sustainable development contributes to shareholder value in a variety of ways not only through tangible contribution such as risk reduction and profitability improvement, but also through intangible asset creation such as brand equity, human capital etc. Operating business by pursuing the sustainable development path strengthens an organisations intangible assets in a number of ways that in

turn leads to tangible shareholder value creation. It is now globally recognised that following sustainable development path makes good business sense. This entails various approaches. For example, eco efficiency is based on a common sense proposition that reduces waste and inefficiency in production processes, saves money and protects the environment at the same time. Life Cycle Analysis (LCA) offers a framework for understanding material flaws and potential impacts involved with providing services or products in a closed loop. Sometimes referred to as cradle to cradle or cradle to grave, LCA looks at an enterprise in terms of input, throughput and output. This helps to identify inefficiencies that drain profit and produce waste including pollutants.

Many of these approaches e.g. eco efficiency, LCA, full cost accounting, industrial ecology, systems based pollution prevention etc. are new to the business world. Businesses keen to benefit from transition to sustainable development path therefore need to prepare themselves and have a longer time horizon and a broader set of goals than traditional companies.


17/118

9

Realisation and recognition of the significance of sustainable development approach usually starts from the top management. However, best intentions are meaningless if these are only lodged in

the minds of a few individuals. Values of sustainable development has to permeate throughout the organisation. Changing a companys culture and outlook requires a contribution from everyone starting from the chief executive officer and permeating through senior, middle, junior management, staff and all working as a team.

To make this change happen towards sustainable development approach, it is important to:

Prepare a mission statement Form in house waste reduction and pollution prevention

teams

Inform employees about economic, environmental and social trends

Maintain regular communication lines Have commitment for community development efforts Be committed to honest and accessible public relations Measure and report on progress and performance Prepare annual sustainability report

SUSTAINABILITY REPORTING

As a result of global upsurge of interest in sustainable development, practice for sustainability reporting has emerged.

Sustainability reporting implies reporting on the economic, environmental and social aspects of organisational performance (also known as triple bottom line reporting). The World Business Council for Sustainable Development defines sustainability report as public reports by companies to provide internal and external stakeholders with a picture of corporate position on activities on economic, environmental and social dimensions.

The Global Reporting Initiative (GRI), a multi stakeholder, international body with a mission to develop and disseminate globally applicable sustainability reporting guidelines, has developed the framework for sustainability reporting for companies reporting on the economic, environmental and social dimensions of their activities, products and services. The broad

structure of sustainability report as developed by GRI contains:

A statement of the chief executive officer describing the key elements of the report


18/118

10

An overview of the reporting company and scope of the report

An executive summary and key indicators

Vision of the reporting company and how that integrates economic, environmental and social performance

An overview of the governance structure and management systems that are in place to implement the vision

Performance across social, economic and environmental areas of impact and activity

Sustainability reporting has the potential to provide critical information for business analysis. These information facilitate financial reporting with forward looking information that could enhance the report users understanding of such key value drivers as human capital formation in the company, corporate governance, management of environmental risks and the capacity to innovate.

Sustainability reporting has been steadily rising since 1993 and has considerably increased in the recent years. The principal business drivers for sustainability reporting are to:

Have a good brand and reputation

Be an employer of choice

Maintain a strong market position

Earn trust of the financial markets

Be innovative in developing new products and services and creating new markets

SUSTAINABILITY ASSURANCE

Companies value the overall contribution that assurance makes

to

the

sustainability

reporting

process.

Organisations

in

the

forefront of sustainability reporting assurance also recognise the key role that they have in ensuring the credibility and usefulness of information flows within the organisation, especially from non traditional and non commercial sources.

Currently, there are only two recognised professional standards for carrying out sustainability reporting assurance. These are: AA 1000 assurance standard developed by the Institute for Social and Ethical Accountability; and ISAE 3000 provided by the


19/118

11

International Audit and Assurance Standard Board which is a part of the International Federation of Accountants.

TRENDS IN SUSTAINABILITY REPORTING Sustainability reporting has become a common practice in a number of countries like the USA, Europe, Japan and Australia. Sustainability reporting is yet at an emerging stage in Asia, Latin America, Africa and Russia.

Though sustainability reporting is not mandatory in India a small but a sizeable number of both subsidiaries of multinational and local companies are preparing sustainability reports mostly based on GRI guidelines. However, majority of these companies are

focused

on

community

initiatives

rather

than

governance

risk

and

disclosure.

With globalisation, Indian companies are increasingly realizing that they have much to lose by not following sustainability reporting norms. Indian companies now see sustainability reporting as central to corporate social responsibility with passive philanthropy no longer a sufficient response to rising expectations.

Conclusion

The goal of sustainable development requires that the businesses take responsibility for their social, environmental and economic impacts. Sustainable development can provide business with an opportunity to innovate and a means to grow at each level and step of business operation. Making the right choices within a company, whether it is newly exposed to the concept of sustainable development or is already advancing its sustainability agenda, contributes to the companys long term success. It is a matter of making the right choices and setting the right priorities. This underlies the need for a positive mind set towards

sustainable development. Wider the spread of sustainability, greater the chances of its success. In order to attain this, rising awareness and hence education, is key.


20/118

12


21/118

13

1

SUSTAINABLE DEVELOPMENT:

EVOLUTION, CONCEPT AND MEANING

EVOLUTION OF SUSTAINABLE DEVELOPMENT

More than one million years ago, humans began to change their

environment with stone tools and fire. There is a theory that hunting hastened the extinction of some species even during the Stone Age. The domestication of wild plants and animals, some 10,000 years ago in Asia, the Middle East and Central America marked the beginning of a profound shifting from hunting to agriculture. This created food surplus that allowed development of cities and civilisations and growth of human numbers.

Civilisations have been struggling with how to live within the natures envelope for thousands of years. Mesopotamia slid into decline some 4000 years ago after faulty irrigation methods

caused a loss in soil fertility. Workers in lead and mercury mines and smelters during Roman times suffered severe health effects, as both the methods were neurotoxins. Lead fallout from their smelting operations was so widespread that it was found in ice cores from glaciers in Greenland some 2000 years later. A natural climate shift sent Europe and North Atlantic region into a warming period from about the years either 600 to 1400. This allowed Norse settlements on Iceland, Greenland and Newfoundland. The little Climatic Optimum or Medieval Warm Period was followed by the little ice age from the mid 1400s to mid 1800s, when harsh winter further drove out the Norse settlements.

There is no way of knowing for sure how many humans there were long ago, but there are estimates that it numbered about 40 to 5 millions around the dawn of agriculture. By 2000 years ago, the population had been estimated at about 300 millions, a figure that grew slowly until the time of the industrial revolution, when it was probably just under 800 millions. In the ensuing three centuries, human numbers have grown more than seven fold.


22/118

14

With the industrial revolution, humans learnt how to exploit nature even more efficiently increasing many aspects of human well being, but at a growing cost to natural resources and services.

The degradation of natural resources are one of the two great environmental problems caused by humans.

Intensive cultivation, sometimes in combination with d eforestation and irrigation from nearby rivers, led to land

degradation and is associated with the decline of great civilizations in places such as China, Egypt, Greece, North Africa and Central America. The second problem is pollution. Waste from humans and their domestic animals have been a threat to drinking water for many thousands of years, when waste accumulation in any

area

outstripped

natures

ability

to

safely

detoxify

the

harmful

organisms. Industrial waste have been accumulating for thousands of years.

By the second half of the 19th century, over hunting and habitat destruction led to the extinction of passenger pigeon and near extinction of plains bison in North America.

By the second half of the twentieth century a rapidly growing list of environmental crisis was triggered by the growing human population coupled with greater demands and technological capacity. Since then there have been serious discussions about the

depletion of materials, food and energy resources.

There is a growing concern about the growth of the worlds population beyond the point where there will be enough materials, food and energy to support it. Rapid deterioration of environment air, water and land featured as significant agenda for discussion and consideration to arrest ecological imbalance, because increased population means increased consumption, which, in turn, leads to discarding more waste into environment.

Hence, it is important that making decisions for growth should

recognise

the

connection

between

action

and

effects

in

the

environment, economy and society. Science tells that humans are altering the atmosphere that supports life on earth. There is a growing realisation that one day very soon countries will go to have a plan for the flattening off of growth curves in spite of the potentially painful consequences. The earth is finite and has only a certain limited capacity. Growth can only occur over a very limited period, until that capacity is enhanced. This springs the idea of sustainable development, which simply put, deals with what kind of a legacy the present generation wants to leave for


23/118

15

their children and grandchildren.

The idea of sustainable development emerged in a series of meetings and reports during the 1970s and 1980s. The interest in

sustainability was spurred by a number of incidents and discoveries during that period, including the leak of poisonous gas from the Union Carbides Chemical plant at Bhopal, India; the explosion and radioactive release from Chernobyl, Ukraine; the hole in the Antartic Ozone layer; leaking toxic chemical dumps, such as Love Canal; general fears about chemical contamination and conflicts over decreasing natural resources, such as forests and fisheries.

In 1972, the United Nations (UN) Stockholm Conference on the

Human

Environment

marked

the

first

great

international

meeting

on how human activities are harming the environment and putting humans at risk. The 1980 World Conservation Strategy, prepared by the International Union for the conservation of nature along with the UN Environment Programme and the World Wildlife Fund, promoted the idea of environmental protection in the self interest of the human species.

In 1983, the UN appointed an international commission chaired by Norwegian Prime Minister, Gro Harlem Brundtland, to find ways to resolve the conflict between the interests of economic

development and the interests of environment, that has created problems all round the world. The Commissions report, Our Common Future, published in 1987 and widely known as The Brundtland Report contends that sustainable development is not a new idea. Many cultures over the course of human history have recognised the need for harmony between the environment, society and economy. What is new is an articulation of these ideas in the context of a global industrial and information society.

KEY EVENTS

LEADING

TO

SUSTAINABLE

DEVELOPMENT Some key events during the last two decades that illustrate the growing interest in sustainable development are outlined below :

1972 : The United Nations Conference on the Human Environment, adopted at Stockholm on 16 June 1972.

1980 : World Conservation Strategy at Switzerland in 1980 for defining the sustainability Development.

1987 : Publication of Our Common Future by World


24/118

16

Commission on Environment and Development, that coined and defined the term sustainable development.

1991 : Amnesty International UK Business Group, a

mainstream international Non Government Organisation (NGO) established and acknowledges the role of business in upholding human rights.

1992 : Rio Earth Summit where Agenda 21, the UN Framework Convention on Climate Change and the Rio Declaration was agreed upon.

2000 : UN Global Compact An initiative by UN Secretary General, Kofi Annan, to promote global corporate citizenship for upholding ten fundamental principles in

the

area

of

human

rights,

labour,

and

environment

protection.

2000 : UN Millennium Development Goals agreed upon to provide definitive, global list of development targets by 2015.

2001 : The New Partnership for Africas Development (NEPAD) was formed to provide a common strategy for African countries to address development issues collectively.

2001

:

At

the

fourth

World

Trade

Organisation

(WTO)

ministrerial conference in Doha, Qatar, a new round of trade negotiations focused on promoting development.

2002 : World Summit for Sustainable Development at Johannesburg underlines the need of working across sectors of society.

2006 : Amsterdam Global Conference on Sustainability and Transparency

2007

:

Growth

and

Responsibility

in

a

World

Economy

G8

Summit Heiligendamm, Summit Declaration

2009 : GRI Amsterdam Declaration on Transparency and Reporting


25/118

17

CONCEPT AND MEANING OF SUSTAINABLE DEVELOPMENT

The Brundtland Report defined sustainable development as the development that meets the needs of the present without compromising the ability of future generations to meet their own needs; and suggested that economic development cannot stop, but it must change course to fit within the earths ecological limits. The Report captured many of the concerns when it said major, unintended changes are occurring in the atmosphere, in soil, in water, among plants and animals. Nature is bountiful but it is also fragile and finely balanced. There are thresholds that cannot be

crossed

without

endangering

the

basic

integrity

of

the

system.

Today we are close to many of those thresholds.

Sustainable Development focuses on improving the quality of life for all of the earths citizens without increasing the use of natural resources beyond the capacity of the environment to supply them indefinitely. It requires an understanding that inaction has consequences and that innovative ways have to be found out to change institutional structures and influence individual behaviour. It is about taking action, changing policy and practice at all levels, from the individual to the international.

This landmark report helped trigger a wide range of action including the UN Earth Summits in 1992 and 2002, the International Climate Change Convention and worldwide Agenda 21 programmes, all of which underlined the need for sustainable development.

Each generation is entitled to the interest on the natural capital, and the principal should be handed over unimpaired. In other words, development should ensure utilisation of resources and the present day environment should not damage prospects for

the

use

by

future

generations.

Living

should

be

on

the

earths

income rather than by eroding its capital. It means keeping the consumption of renewable natural resources within the limits of their replenishment; and handing down to successive generations not only man made wealth, but also natural wealth, such as clean and adequate water supplies, good arable land, a wealth of wild life and ample forests.

In 2012, the United Nations convene the United Nations Conference on Sustainable Development (UNCSD) at Rio de Janerio (Brazil) also referred as Rio +20 as a 20 year follow up to


26/118

18

the historic 1992 Rio de Janerio Earth Summit. The objective of the Summit is to secure renewed political commitment for sustainable development, reviewing progress and remaining implementation

gaps and assessing new and emerging challenges. The Summit will also try to address the issue that how a green economy can contribute to the sustainable development and poverty eradication.

The quality of future human activity and development is increasingly dependent on maintaining balance between continued economic and social development without detriment to the environment and natural resources.

Sustainable Development is based on the principles of :

Concern

for

the

well

being

of

future

generations;

Awareness of the multi dimensional impacts of any decision (broadly categorised as economic, environmental and social); and

Need for balance among the different dimensions across sectors, themes and scales.

The SIGMA guidelines states that creating a sustainable future economically, socially and environmentally requires that the actions of governments, organizations and individuals do not

cause

irreparable

damage

to

the

environment

and

to

society,

which would threaten the long term survival and well being of the planet and its people. Sustainability in the context of organizations encompasses the social, environmental and economic impacts of a business or other organization. These impacts are judged in terms of the extent to which they contribute to sustainable development .


27/118

19

2

SUSTAINABLE DEVELOPMENT AND BUSINESS

CORPORATE SOCIAL RESPONSIBILITY

Business must make money and staying in business and prospering is a fundamental value of any for profit enterprise. Companies therefore owe responsibility to their shareholders for improving profitability and enhancing shareholder value. At the same time, companies are required to take into account the interests of all

their

stakeholders

that

include

customers,

employees,

investors,

vendors, government and the society.

It is in this context that Corporate Social Responsibility (CSR) assumes a significant role. CSR is underpinned by the idea that companies can no longer act as isolated economic entities in detachment from broader society. Traditional views about competitiveness, survival and profitability are undergoing a paradigm shift.

The drivers pushing business towards CSR are:

Shrinking Role

of

Government

In the past, governments have relied on legislation and regulations to deliver social and environmental objectives in the business sector. Shrinking resources of the governments coupled with a distrust of regulations have led to the exploration of voluntary and non regulatory initiatives instead.

Demands for Greater Disclosure

There is growing demand for corporate disclosure from stakeholders, including customers, vendors, employees, investors, communities and activist organisations.

Increased Customer Interest

There is evidence that the ethical conduct of companies exerts a growing influence on the purchasing decisions of customers. In a recent survey conducted by Environics International 1 , more than one in five consumers reported having either

1An international polling firm now named Globescan.


28/118

20

rewarded or punished companies based on their perceived social performance.

Growing Investor Pressure

Investors are changing the way they assess companies performance, and are making decisions based on criteria that include ethical concerns.

Competitive Labour Markets

Employees are increasingly looking beyond paychecks and benefits, and seeking out employers whose philosophies and operating practices match their own principles. In order to hire and retain skilled employees, companies are forced to improve working conditions.

Supplier Relations

As stakeholders are becoming increasingly interested in business affairs, many companies are taking steps to ensure that their vendor partners conduct themselves in a socially responsible manner. Some are introducing codes of conduct for their vendors to ensure that other companies policies and practices do not tarnish their reputation.

Growth of a company requires the cooperation of al l the stakeholders. To ensure this cooperation, the management of a

company needs to act as trustees of the shareholders at large and prevent asymmetry of benefits between various sections of shareholders especially between owner managers and the rest of the shareholders. It also has to be fair and transparent to all stakeholders in all transactions.

CORPORATE GOVERNANCE In this regard corporate governance forms a key element of CSR. Good Corporate Governance helps ensure that a company takes

into

account

the

interests

of

a

wide

range

of

constituencies,

as

well as of the communities within which it operates. While large profits can be made taking advantage of the asymmetry between stakeholders in the short run, balancing the interests of all stakeholders alone helps to ensure survival and growth in the long run. This includes, for instance, taking into account societal concerns about labour and the environment.

The credibility offered by good corporate governance helps maintain the confidence of investors foreign and domestic to attract more patient, long term capital and reduce the cost of


29/118

21

capital. This ultimately induces more stable sources of financing. Recently, stock market analysts have acquired an increased appreciation for the correlation between governance and returns.

The East Asian financial crisis has brought the subject of corporate governance to the surface in Asia. Further, recent scandals, that disturbed the otherwise placid and complacent landscape in the US, spawned a new set of initiatives in corporate governance in the US and triggered fresh debate in Asia. Additionally, the thrust given to globalisation, setting up of the World Trade Organisation (WTO) and every member of WTO trying to bring down the tariff barriers have put greater importance to corporate governance than ever before.

When

investments

take

place

in

emerging

markets,

the

investors

want to be sure that not only are the capital markets or enterprises with which they are investing, run competently but they also have good corporate governance. Corporate Governance represents the value framework, the ethical framework and the moral framework under which business decisions are taken.

Corporate Governance, therefore, calls for three factors:

Transparency in decision making

Accountability which follows from transparency because responsibilities could be fixed easily for actions taken or not taken, and

Accountability for safeguarding the interests of the stakeholders of the company.

Corporate Governance initiatives in India began in 1998 with the Desirable Code of Corporate Governance a voluntary code published by the Confederation of Indian Industry and the first formal regulatory framework for listed companies specifically for corporate Governance, was established by the Securities Exchange Board of India (SEBI) in February 2000 following the

recommendations of the Kumarmangalam Birla Committee Report.

CORPORATE GOVERNANCE AND

SUSTAINABLE DEVELOPMENT As part of good corporate governance, the management of a company needs to understand and recognise sustainable development means conducting business in a way that meets the


30/118

22

needs of the enterprise and its stakeholders today, while protecting, sustaining and enhancing the human and natural resources needed tomorrow.

As good corporate citizen, a company should not only be respecting the laws of the countries in which it operates, but also aim to:

Make the communities in which it works better places to live and do business;

Be sensitive to the local communities cultural, social and economic needs;

Protect and preserve the environment where it operates;

REALISATION OF SUSTAINABLE DEVELOPMENT APPROACH IN BUSINESS

The late 1990s and early 2000s were turbulent periods for the global investment community, with vast amount of shareholder wealth being created and destroyed. Both the institutional and retail investors have learnt some painful lessons, re examined their assumptions about what constitute tangible and intangible value, and broadened their scope to consider characteristics that could

lead

to

long

term

financial

success.

One area of corporate performance that has begun to capture the Attention of investment professionals is Sustainable Development: a set of responsibilities that contributes directly to an orgnisations risk management profile and is sometimes also linked with corporate responsibility.

There is considerable evidence that sustainable development contributes to shareholder value in a variety of ways not only through tangible contribution such as risk reduction and profitability improvements but also through intangibles such as brand equity, human capital and strategy execution. In the words of Gary M.Pfeiffer, Senior Vice President and Chief Finance Officer of DuPont every corporation is under intense pressure to create ever increasing shareholder value. Enhancing environmental and social performance are enormous business opportunities to do just that.

The investment community increasingly recognised the importance of intangibles in the shareholder value equation. Leadership, strategy execution, brand, human capital,


31/118

23

environment and health performance are all currencies in todays market place. A report on the Intangibles Economy to the European Commission noted that Intangibles such as research &

development, proprietary know how, intellectual property and work force skills, world class supply network and brands are now the key drivers of wealth production while physical and financial assets are increasingly regarded as commodities.

The International Accounting Standards Board (IASB) defines an Intangible as an identifiable, non monetary asset without physical substance help for use in the production of goods or services, for rental to others or for administrative purposes. Thus, Intangibles include people, relationships, skills and ideas that add value but are not traditionally accounted for on the balance sheet.

The Sustainable Development approach to conduct business can strengthen a companys intangible assets in a number of ways that in turn lead to tangible shareholder value creation. The many pathways to shareholder value are illustrated in the figure below:

Figure 1 : Overview of Pathways Linking Sustainable

Development to Shareholder Value

Value to Society

Product and Process

Innovation Reduced Waste andEmissions

Efficient Use of Resources

Occupation Health and Safety

Stakeholder

Engagement

I n t a n g i b l e A s s e t s

Tangible

Outcomes

Increased

Profitability Improved Capital Utilisation Share

holder Value

Customer Satisfaction Intellectual Capital Licence to Operate

Reputation and

Brand

Image Reduced Risk

Employee Satisfaction

Environmental Protection

Community Quality of Life


32/118

24

Figure: 2 How we enhance the value of our Stakeholders through the process of the Sustainability development approach

The recent wave of accounting scandals in the United States has led investors and other corporate shareholders to rethink their position of just what is fundamental to the valuation of a company. There is mounting evidence of financial risks associated not only with corporate environmental liabilities, but of global problems such as climate change. The stock market analysts are

gradually

becoming

aware

of

the

importance

of

measurement

and

disclosure of non financial elements of a business. For example, upto 86% of oil and gas industry analysts surveyed recently in the United States confirmed that company performance in regulatory compliance, employee health and safety, community service, and law suits do indeed impact the value of a firm. The financial executive Linda Descano of Citigroup noted these issues are no longer environmental and social issues but are now recognised as strategic business issues.


33/118

25

Leading companies now recognise that meeting a range of global challenges, such as protecting the environment and alleviating poverty, is essential to their long term business success. The

business needs to build new relationships with key stakeholders increase the retention of quality employees, develop new markets, increase operational efficiency and promote be tter risk management. Carly Fiorina, the Chief Executive Officer (CEO) of Hewlett Packard observed we now must enter a period of enlightened self interest where community development objectives are not seen as separate from business objectives, but fundamental to business objectives.

Collaboration among business, government and civil society is an essential way to deal with these issues that increasingly affect business. As Kofi Annan, Secretary General of the United Nations, says creating wealth, which is businesss expertise and promoting human security in the broadest sense, the United Nations main concern are mutually reinforcing goals. Thriving markets and human securities go hand in hand. The world of hunger, poverty and injustice is one in which markets, peace and freedom will never take root. These issues require social solutions.

Examples of cross sector collaboration include gaining an understanding of specific social issues at the local level; developing

low

cost

technologies

or

business

training

programmes

for

local

entrepreneurs and small and medium enterprises; establishing independent certification bodies to ensure sustainable management of natural resources such as fisheries stocks or forests; and encouraging governments to establish international regulatory frameworks needed to handle global issues such as climate change.

Strategic Approach to embedding Sustainability

Today the most critical challenge facing business and society is to

tackle

various

environmental

economical

and

social

challenges

and therefore there is a need for all organization to embed sustainability in their organization. Accounting for Sustainability (A4S) identified ten important elements required to embed sustainability successfully in an organization. These are:

Board and Senior Management Commitment Senior Management needs to be committed to the process of embedding sustainability. A Committee may also be established to identify and address environmental and social issues.


34/118

26

Understanding and analyzing the key sustainable drivers for the organization The issues and drivers for embedding sustainability varies according to the context in which a

particular organization operates. Therefore it is very important for each organization to determine which sustainability areas are most important for it and to understand how sustainability in these areas affect reputation, brand and relationships with key stakeholders.

Integrating the key sustainability drivers into the organizations strategy Having identified the key sustainability issues for the organization and quantified their impact to the greatest extent possible, it is important that they are incorporated and reflected in the organizations strategy as an integrated and connected part of the whole, rather than as stand alone issues and objectives.

Ensuring that the sustainability is the responsibility of everyone in the organization and not just the responsibility of a specific department It is essential that the connection between sustainability measures and the organizational performance is understood and that sustainability is embedded in mainstream management processes.

Breaking down sustainability targets and objectives for the

organization as a whole into targets and objectives which are meaningful for individual subsidiaries, divisions and departments There have to be effective mechanisms for translating strategy and top level enthusiasm into the day to day operations of the organization. It is essential that targets and objectives set for the organization as a whole are broken down into targets and objectives which are meaningful for individual subsidiaries, division and departments.

Processes that enable sustainability issues to be taken into account clearly and consistently in day to day decision making Sustainability factors will not be taken into account by the middle managers and others unless they are given the authority, processes and information to be able to do so. For example, in setting a target for the reduction of greenhouse gas emissions during the production and use of a particular project, the manager concerned will not be able to respond meaningfully unless information about greenhouse gas emissions at each life cycle stage is given and unless he or she is able to balance the cost of reducing emissions with


35/118

27

other factors such as pricing, quality and availability of raw material supply. It is therefore important to ensure that the relevant information and decision making processes are

available to those having to take sustainability issues into account.

Extensive and effective sustainability training Creating a culture of sustainability begins with staff throughout the organization. Training is very important in this regard as it will help in creating awareness within the employees that what sustainability means for them and how they should act.

Including sustainability targets and objectives in a performance appraisal It is essential that sustainability

issues

are

reflected

fully

when

setting

objectives,

assessing

and remunerating staff and considering promotions. Champions to promote sustainability and celebrate

success In order to embed sustainability successfully there need to be people who understand the issues and have the capacity for change at every level. In other words champions need to be identified who can be encouraged and relied upon to use their passion and commitment to embed the strategy. From the board of directors down to the lowest levels within the organization there should be active involvement with

sustainability issues to influence thinking and behaviour throughout the organization. Celebrating success and showcasing good practice can also encourage further innovation and provide case studies from which others can learn.

Monitoring and reporting sustainability performance Accountants are inclined to say that if it is not measured it is not done and reporting sustainability performance in internal and external accounts is essential. Sustainability measures need to be reported in a way that is part of and connected to the other key measures, financial and general, which inform performance evaluation. Measuring sustainability factors and establishing them at the heart of decision making ensures that sustainability is embedded in the day to day life of the organization. In order to maintain support for sustainability improvements it is necessary to demonstrate how the organization has benefited from the changes made. This requires monitoring and reporting back on progress in achieving sustainability priorities.


36/118

28

CASE STUDIES

There are instances across the world and in India of several companies adopting sustainable development approach for conducting their business. A few such examples are set out in the succeeding section of this chapter.

EXAMPLE 1: THE WELCOMGROUP BAY ISLAND HOTEL

A Green Model for EcoTourism

The Welcomgroup Bay Island (WGBI) hotel, owned and operated by ITCWelcomgroup, is located in Port Blair in the Andaman

Islands.

The

WGBI

hotel

has

created

a

new

green

model

to

operate in an eco responsible manner and to create an eco tourism model for the island. This model could eventually be replicated, with regional nuances, by the Welcomgroup chain and the entire industry.

In order to do this the WGBI hotel first modified its objective to state the following :

We are in the business of providing room, food, beverage and ecoknowledge to our hotel guests and everybody in the islands.

In developing the new green model the WGBI hotel concentrated on four Rs strategy: Reduce, Reuse, Recycle and Rethink systems, procedures and policies. It addressed the issues by adopting innovative strategies.

An internal green strategy was initiated because hotel employees believed that they must practise what they preached and the programme started from end of 1988. The hotel addressed issues ranging from water, soil, waste, paper etc. in a creative manner.

Water Management

Port Blair had a major water crisis in 1991 when its filtered water supplies were reduced from 8 kilolitres to 2 kilolitres per day. To run its business the WGBI hotel replaced all interior piping with plastic pipes to avoid corrosion, so that the clean salt water from the sea could be used for flushing toilets, thereby reducing the demand on filtered water supplied by the municipality. It also dug a well to harvest rainwater for gardening during the summer season.

In the process, there has been saving of water and saving of energy.


37/118

29

Soil Management

The hotel being located on the slope of a hill, soil erosion is a frequent problem. To combat this issue cost effectively the hotel

used the outer husk of the coconut or coconut coir, which lie on

the island as garbage. This has two advantages. Coir being biodegradable is environmentally friendly and as no longer land filling is required, it is also financially cheap.

Waste Management

The hotel adopted a twin approach to reduce waste.

Initially, tourists went for sight seeing trips to the other islands of Port Blair with lunches packed in cardboard boxes. These boxes were invariably left behind on the islands thereby creating a garbage problem a veritable visual assault. The hotel replaced cardboard boxes with steel lunch boxes. Users have to return the boxes or pay a fine. The system eliminated recurring cost of buying cardboard boxes and reduced the garbage levels on the other islands. Besides, instead of disposing of used cooking oil in the drain, the hotel converted this cooking oil into soap, which is used for washing utensils. This has reduced effluent levels in the water and saves the hotel from having to purchase washing powder.

Paper Conservation All old documents of the accounts department are segregated into benign and confidential lots. The confidential lots are shredded, mixed with wet garbage and converted into fertilizer for use in the hotel garden. The other documents are converted into scratch paper for internal use.

The paper caps used by chefs are replaced with cloth caps. The brown paper used as lining in the drawers of writing desks in every room are replaced with velvet. By taking these actions, the

hotel

reduced

the

usage

of

paper

pulps in order to lessen

deforestation rates. Further, to build awareness around this subject, the hotel started an afforestation programme in Port Blair by planting 1500 saplings in the airport complex.

Poverty

Poverty is one of the biggest polluters. The WGBI hotel created a transferable model in this area.

The WGBI hotel adopted one of the poorest orphanages on the islands and provided educational materials as well as the services


38/118

30

of the hotel carpenters, plumbers and electricians. Children aged 14 to 16 years are given vocational training in the hotel for ten hours a week during four months to equip them with marketable

skills when they leave the orphanage.

EcoTourism Museum

Additionally, the hotel has created a small eco tourism museum on it s grounds to educate people about environmental degradation.

Results

Through it s efforts, the hotel has gained cost, image and operational advantages and has since become a pioneer in eco responsible chain in India.

EXAMPLE 2: LAFARGE INDIA

Project Employability Model

Lafarge India is a subsidiary of Lafarge Group, the worlds largest cement producer and a leader in building materials. Lafarge India launched its operations in November 1999 with the acquisition of Tata Steel Cement and later Raymond Cement. By 2004, Lafarge India augmented its capacity to 5 million tons of cement and is

the

market

share

leader

in

eastern

India.

Lafarge

India

has

about

1,500 employees operating three cement manufacturing plants in India.

The companys main stakeholders are: The youth population residing in the vicinity of the plants

as well as in the operating markets; Customers who are using Lafarge Cement for building

homes and other structures; Government, which looks to companies to play a role in

reducing

unemployment;

Non Government Organisations (NGOs) which are active in underdeveloped rural areas and are actively seeking effective methods of community development;

Shareholders, the edia and future employees who would prefer to invest in and work for a company which is a responsible corporate citizen, as well as a preferred community partner;

Current employees who have the talents and skills to help


39/118

31

the company succeed and are keen to share them with society.

The Local Communities Lafarge Indias plants are located in remote areas in eastern India. part of the neighbouring communities belong to the nderprivileged class facing difficult socio economic constraints, uch as poor access to infrastructure, including health care and anitation facilities. This part of the population also suffers from low income, scarce opportunities and semi illiteracy, as well as low womens empowerment. A large percentage of the population is unemployed and mostly are casual labour. A majority is under the age of 30.

Many dwellings are huts, which are dilapidated and by and large unlivable. There is lack of rural sanitation facilities. Safe drinking water is not available and irrigation is highly monsoon dependent. This is combined with fewer roads than in metropolitan areas and poor quality schools coupled with underdeveloped health and hygiene systems.

Lafarge has the resources and talents available to tackle some of these issues, for example, transforming the youth population by making them more employable. Lafarge has the potential to assist

them

to

acquire

skills

and

knowledge,

and

thereby

increase

their

income level. Reducing unemployment levels would in turn lessen potential conflicts and create a foundation for a healthy, long term and mutually beneficial relationship between the company and the community. Lafarge can create employment opportunities through its contacts in the construction sector, a large employer of masons, as most of them buy it s cement. Additionally, establishing a situation where social conflict is reduced would boost Lafarges licence to operate.

It is well established that business prosperity amidst large scale

poverty and difficult socio economic situations is difficult to maintain. The absence of sustained sources of income combined with low education level and other social threats have compelled the neighbouring communities to expect Lafarge plants to provide employment. When employment is not provided, this creates conflict and affects the companys long term operations. Hence, Lafarge firmly believes that it has to play a critical role both as direct development project implementer as well as a catalyst to bring prosperity to the communities in which it operates, especially those neighbouring its plants.


40/118

32

The Markets Untrained, semi skilled or unskilled masons and a lack of safety norms and practices characterize the Indian construction sector.

This translates into high construction costs and lack of adherence to safety rules at the sites. Poor workmanship often results in unsatisfied customers. Masons are also known to be powerful influencers, especially in rural areas where architects and engineers are either not available or not affordable. While individual homebuilders consume 80% of Indias cement production, a large part of the rural population lives in non cement houses, which tend to be unsafe and uncomfortable. One of the primary reasons for this is the absence of skilled manpower and low awareness of the quality of cement houses. If Lafarge is able

to reach the rural markets and provide them with skilled manpower, the overall cement market would expand which is meaningful to the company.

Employees

Lafarge India has a pool of qualified engineers and technicians, as well as experienced marketers and seasoned training rofessionals. Many of these employees look towards Lafarge to help them share their experience and expertise with society. This motivates the employees and make them feel part of the larger

picture. In this respect, one area where Lafarge aims to make a ifference is through the creation of a group of corporate olunteers who could take on development projects on behalf of Lafarge and share their expertise with the society in a fulfilling manner. Another opportunity is to increase employee motivation and influence future generations through word of mouth, projecting Lafarge as a preferred company to work for.

Opportunities Lafarge India is turning the current socio economic climate into a

business

opportunity.

By

providing

professional

training

to

youths as masons and helping them gain employment in the construction sector, Lafarge aims to reduce unemployment and increase income levels to a consistent US$ 2 3 a day. These two

improvements in the lives of local population aim to reduce the socio economic ills prevalent locally and significantly diminish the chances of conflict within the society.

At the same time, Lafarge would supply the construction markets with skilled and trained masons, providing technical superiority


41/118

33

and safe and quality workmanship, which benefits the customer by lowering costs, and benefits Lafarge through increased sales volumes.

Targets In India, Lafarge aims to:

Provide training to 700 rural unemployed youths residing around its three Indian plants and in its markets to become skilled and qualified masons;

Ensure that 75% of the candidates find suitable employment on construction sites at an income of US$ 2 3 per day on a consistent basis;

Launch rural housing schemes, including slum

rehabilitation, which would employ the same masons and increase cement consumption levels, especially those of Lafarge Cement;

Ensure that training methodology also incorporates specific Lafarge modules, exposing masons to Lafarges products and processes, thereby making them long term brand ambassadors.

Activities To reach these targets, Lafarge has created a partnership with the

Institute of Engineers, a reputed technical training institute in India. Through this partnership, five Lafarge managers act as corporate volunteers during a two month training course called Project Employability. The volunteers are drawn from various disciplines (customer service, quality, sales & marketing, training) and are responsible for developing the project, creating goals and working methodologies. The Institute of Engineers continuously evaluates the course, provides the methodology structure, course content and is responsible for evaluating students for certification. The course entails theory and practical

classes. The candidates are required to build a low cost house during the practical exercise.

The course also includes a visit to Lafarge factories to better understand Lafarge products and provide exposure to cement manufacturing processes in general and the quality of Lafarges processes in particular. It also includes motivation classes with examples of local role models who have achieved significant improvement in their quality of life. During the course, managers from construction companies (who are often Lafarge customers)


42/118

34

are regularly invited to the site to build awareness and evaluate employment opportunities for the candidates.

The first training course was launched on 19 May 2004, in

Khakripara, a village near the companys Jamshedpur Cement Plant in Jharkhand. 56 rural youths were selected for training, based on initial screening, proximity to the plant, and other criteria. A preference was given to those who had modest exposure to arithmetic and the zeal to become part of a trained workforce.

At the end of the first training session, the students were evaluated using the criteria of the Institute of Engineers and awarded graded certificates as well as identity cards. An on campus recruitment

drive

was

organised

which

saw

all

28

qualified

candidates

find

a

job in the construction sector within months of graduating. This factor has made the course very successful. The five corporate volunteers have accepted the task of mentoring the candidates during the following 12 months. The mentoring process includes one on one sessions and awareness building camps.

Results

The results of the programme have so far been excellent:

All 28 candidates who passed the examinations have found employment with Lafarge customers;

Wide spread coverage of the programme by local media

gave Lafarge a favourable corporate image;

Lafarges customers have appreciated this step and agree that the project should be continued.

EXAMPLE 3: SHELL FOUNDATION Searching for Sustainable Solutions to Indoor Air Pollution

Indoor Air Pollution (IAP) kills more than 1.6 million people each

year one person every 20 seconds and some two billion more are at risk. It kills more people than malaria and nearly as many as unsafe water and poor sanitation. It is the fourth largest health threat to women and children (in the worlds poorest countries) after water borne diseases, malnutrition and HIV/AIDS.

The smoke from open fires fills homes with a noxious cocktail of particles and chemicals, often 100 times above agreed international exposure standards. These particles double the risk of respiratory diseases such as bronchitis and pneumonia. Recent research also


43/118

35

points to links between IAP and low birth weight, increasing the vulnerability of the newborn.

In October 2004, the World Health Organisation (WHO) and the

United Nations Development Programme (UNDP) labelled IAP the Killer in Kitchen. IAP is also part of a well known poverty chain (the poor, not able to afford cleaner commercial fuels, must spend many hard hours collecting freebiomass fuel) whose indirect costs on time and health are enormous.

Cleaner fuels such as electricity and gas have not reached remote developing markets because of high equipment and distribution costs. But access to cleaner fuel and stoves, improved ventilation and health education could all work in tandem to benefit even

the

very

poorest.

The Shell Foundation approach

For these reasons and because IAP is the most serious energy and poverty related health problem, the Shell Foundation has committed US$ 10 million to tackle IAP through its Household Energy and Health Programme, branded as Breathing Space. Breathing Spaces approach is to identify, test and then ideally diffuse market based schemes for getting killer smoke out of very large numbers of very poor peoples kitchens. Under this programme supply and demand side interventions based on business and market principles are being piloted in eight developing countries.

A New Customer Value Proposition Needed

A new generation of stoves has been designed to effectively reduce emissions, but they are significantly more expensive than the lower cost efficiency stoves, increasing the barriers to access for poorer customers. In some cases these improved biomass stoves are more expensive than liquid petroleum gas (LPG) stoves. But LPG as a fuel is often not available in rural areas. The combined

effect of these product limitations and the low availability of desired alternatives is that there is often a very poor customer value proposition for new stoves and fuels. Consequently, demand is low and marketing costs are high.

Against this backdrop, the Shell Foundation reasoned that by successfully demonstrating that there might be at least partially market based approaches to tackling IAP, it might be possible to break the vicious cycle of ineffective international development community interventions by better understanding and tackling


44/118

36

the market barriers. This in turn might provide the impetus to attract sufficient donor and/or private sector interest to engage in an avoidable poverty problem that has probably caused 40

million unnecessary deaths over the last 20 years.

Partnering to find solutions The Shell Foundation started its work with a stakeholder consultation and a typical donor Request for Proposals (RFP), asking for potentially commercialisable and scaleable ways of tackling IAP. The RFP attracted about 140 proposals, primarily from NGOs, of which most addressed the IAP issue but failed to understand what the Foundation meant by commercialisable or scalable solutions to IAP.

The

next

task

was

then

to

set

up

pilot

projects

with

some

very

good NGO partners in a number of countries to systematically explore different market based IAP solutions. These included the development and sale of cleaner stoves, cleaner fuels, use of consumer finance on a micro credit model, consumer education and reducing costs through mass production and distribution, etc.

Key Actions for the Pilot Phase

Through these pilot projects, the Shell Foundation and its partners have tried to learn whether:

The target marketrural households suffering from IAPhas an interest, willingness and ability to pay for IAP solutions;

The improved products really reduce IAP exposure; There was some form of business, manufacturing, financing

and distribution model that could produce and market appropriate and affordable IAP products to very poor households.

In parallel, the Foundation carried out a systematic review of the only two large scale household energy programmes in the world:

the National Improved Chulha Programme in India and the National Improved Stove Programme in China. Lessons from these two programmes have been extremely valuable in developing Shells approach, both in terms of what has worked and what has not. In both cases the programmes were highly subsidised but had mixed results in reducing IAP.

The China programme is largely deemed a success and has led to the establishment of a thriving stove market as well as some excellent technical innovations. The Shell Foundation


45/118

37

review was the first of the programme since the 1980s and has brought the China experience to the attention of the international community. In the case of China, the government

deemed the successful commercialization of stove production and sales a sufficient sign of sustainability in the supply chain. In India and China some state level government agencies have continued the programmes.

More Than Money

In addition to providing financial resources to the pilot projects, Shells Breathing Space programme had three features:

The provision of significant technical and business assistance to partners through intensive hands on

engagement by foundation staff, local Shell staff and finance and business consultants.

Separately funded complementary activities designed to answer key developmental and commercialisation questions raised by the pilot projects. These included development of a standardised monitoring methodology to assess the key actions described above.

The development of a second set of tools for market

research, demand assessment, supply chain

development and sustainable financing.

Results

To date 250,000 households have been removed from risk through efforts in getting smoke reducing products to poor households. This figure would rise to more than a million by the end of the pilot phase in 2005 at a total cost of US$ 7 million. Although this is the first systematic IAP intervention ever mounted on a global scale, it is still limited compared with the extent of the problem.

However, a number of the interventions tested are robust enough

to take to scale. Next stage scale ups underway in India and Guatemala, based on financially viable business models, are targeting three million households.

By 2008, using the Shell Foundations own resources as investment capital and smart subsidies provided by other international and National organizations through government and non governmental development programmes, the target is to get 10 million households out of risk. In parallel, they are exploring the feasibility of building strategic partnerships and setting up


46/118

38

financially viable intervention mechanisms at the international and national level.

Indias Smokeless

Village

The women in the Indian village of Khanav, south of Mumbai, have turned their community into a smokeless village. These women, led by the village self help group, do not want to cough and wipe smoke from their red eyes each time

Documents

Sustainability Book