Syllabus developed by Jens Trummer - vse.czkp.vse.cz/wp-content/uploads/2011/07/Class5.pdf · Syllabus developed by Jens Trummer. ... “Our Common Future ... Individual stocks

Corporate Social Responsibility

Class 5:Wrap-ups

Syllabus developed by Jens Trummer

Agenda

1. Sustainable Business Models

2. NGO-Business Cooperation

3. Socially Responsible Finance & Investment

4. Questions on CSR Lab and CSR Classes4. Questions on CSR Lab and CSR Classes

Sustainability Reporting: GRI

- Vision and Strategy (p. 8)

- Profile (chapter 1)

- Governance Structure and Management Systems (chapter 2)

- GRI Content Index (p. 72)

- Performance Indicators – measures of the impact/effect

Class 4

See Page 1, GRI:What 3 main categories?

In GRI – what main categories are there?See Table of Contents (pages 4&5)

Social

The Three Pillars of Sustainability

EconomicEnvironment

Social


United Nations World Summit Outcome Document (2005):

"interdependent and mutually reinforcing pillars"

Sustainable

Economic

Social

Equitable

Environment Viable

Bearable

Triple Bottom Line (TBL):People, Planet, Profit

John Elkington

Cannibals with Forks:the Triple Bottom Line of 21st Century Business

(1994)

EconomicEnvironment

Social


1987: “Our Common Future”‘Brundtland Commission’= UN World Commission on Environmentand Development, 1983-87

Chair: Gro Harlem Brundtland, Norwegian Prime Minister

Sustainable “Development” :Sustainable “Development” :“Meeting the needs of the present without compromising the

ability of future generations to meet their own needs.”

Ideologically Controversial

Misuse of ‘Sustainable’

What is the difference between

Sustainable Businessandand

CSR?

CSR or Sustainability ???

Stage 4:

Stage 3:Strategic CSR:

Strategycomplimentingbusiness activityEvolution of CSR:

CSRStage 1:

CSR non-

existent

Stage 4:‘CSR’

Intrinsicbusiness strategy/activity

Stage 2:CSR non-strategic:

- Philanthropy- Donations

- Volunteering, etc.Sustainability

Where does business case start … and stop ???Class 1

CSR

?

Sustainability and Business:http://www.iisd.org/business/

“Adopting strategies and activities that meet the

“Meeting the needs of the present without compromising the ability of future generations to meet their own needs.”

“Adopting strategies and activities that meet the needs of the enterprise and its stakeholderstoday …

… while protecting, maintaining and enhancing the human and natural resources that will be needed in the future .”

The Telenor House Environmental Features:

Heat Pump: 180 wells, 100 m deep

Solar Panels: Area 168 m2, 60-70% of energy covered

Green Features: Own meteorological station, data from 10,000 points

‘Social’ Features:- Desk sharing- Desk sharing- Restaurant, grocery store, cafe, games

Sustainable ?

Sustainable ???

So, what is‘Corporate Sustainability’ ?

1. Eco-Efficiency

= Firm’s efficient use of natural capital.

= Economic value added by a firmin relation to its aggregated ecological impact

2. Socio-Efficiency= Relation between a firm's value added and its social impact

Negative or positive?Which is easier to manage?

What areIncentives for greater

Eco Efficiency ???

CSR

Incentives for greater Business Sustainability

Direct Effects- Cost Reduction along Life Cycle

- Increased Efficiency

Indirect Effects

= Sustainability?

CSRIndirect Effects- Reputation

- Brand differentiation- Reduced Compliance & Mitigation Costs (= ‘Risk Management’)

- License to operate- Labor Attraction and Retention- Easier to attract/obtain capital

- Innovation and learning (internal & external – new products)

So why is Environmental Sustainability

not more prevalent???

Market Failures:1. Environmental costs often externalized

(i.e. borne by society).

2. Natural capital often undervalued

3. Information asymmetry –link between cause and effect obscured3. Information asymmetry –link between cause and effect obscured

4. Contrary to economic theory many firms not perfect optimizers

“Business as usual" mentality???

Cohen and Winn, “Market imperfections, opportunity and sustainable entrepreneurship”. Journal of Business Venturing, 22(1): 29-49 (2007)

Why??Isn’t energy efficiency more cost efficient?

How to ‘internalize’Externalities ???

From Externalities to Internalities:Monetizing Environmental Impact on Business

US: Cost to farmers of bee colony collapse: $15bnGlobal: Cost of pollination services $190bn

(Sources: US Department of Agriculture and Teeb)

From Externalities to InternalitiesMangroves & Shrimp Farming in Thailand

Value: $10,821/ha- Wood

- Nurseries for offshore fisheries- Protection against storms

Value: $1,122/ha- Shrimp

From Externalities to InternalitiesMangroves & Shrimp Farming in Thailand

Value: $10,821/ha- Wood

- Nurseries for offshore fisheries- Protection against storms

Value: $1,122/ha- Shrimp

Ok, but who should pay???

Who will pay ???

Pakistan Flooding (2010)

Cotton Prices ↑

2011/12: Primark, Next and H&M Prices ↑ Consumers pay

Source: BBC

Unilever: Tea plantations in Kenya$450,000 in 10 years planting 1 million indigenous trees

Companies pay

Local population chopped down Mau Forest → less rain & ground water

With greater env. pressure

(from NGOs and environmental regulation),

will the future look like this

CSR or Sustainability ???

What is difference ?Class 3

???

look like thisor stay like this + CSR

???

and

Agenda





COMPANY

‘Internal’ Stakeholders:

Shareholders

‘External’Stakeholders:

‘External’Stakeholders:

The company and its 7 core stakeholder groups:

Media

Class 2

‘Internal’ Stakeholders:

- Employees- Supply Chain

Customers

- Environment/NGO- Community/NGO- Government

- Environment/NGO- Community/NGO- Government

MediaMedia

What are mainNGO functions ???

Function 1: General Support

Examples ?

Function 1: General Support:

Medecins sans FrontierRed Cross

Help the HomelessHabitat for HumanityHabitat for Humanity

… and children, nutrition, immigrants, etc.

Function 2: “Watchdog”/Campaigner

Examples ?

Function 2: “Watchdog”/Campaigner:

GreenpeaceNRA !!!

Often Functions 1& 2 mixed:

OSISierra Club

WWF

What about ‘CSR NGOs’ ???

Often Functions 1& 2 mixed:

‘CSR NGOs’:

www.bsr.orgwww.wbcsd.org

www.accountabilityrating.comwww.csreurope.org

www.globalreporting.org

And a 3 rd very important function relating toCSR Strategies ???CSR Strategies ???

Function 3: From Conflict to Collaboration?

WatchdogBusinessPartner

Globalization → More Partnerships

Before 1990s very rareBefore 1990s very rare

Today: 45% of companies

Government:Large and lengthy

BureaucraciesNGOs

CHANGE

NGOs

Companies:Where change

happens

Traditionally: lobbying, etc.

Bureaucracies happens

‘New Orientation’Conflict to collaboration: More effective & cheaper

- WWF and Government- WWF and companies 1- WWF and companies 2

Why didcollaborate

with???

Is this a ‘good’ thing?… for business or for NGOs?… for business or for NGOs?

Can a genuine partnership between companies and NGOs really exist ?

Source: “From Conflict to Collaboration”, Attenburg & Weikert, Global CSR Casebook(Chapter 5: Know-how and Development, pp. 221 – 227)

Business Advantages:

1. Reputation & BrandingLinking with ‘good’ NGOEspecially for companies who:

- Bribe (Siemens & Centre for Integrity in Business and Government LINKand Government

& NGO Tiri – MakingIntegrity Work)

- ‘Exploit’ (Nike)- Pollute (Exxon, BP)

- Crowd out competitors (Microsoft, Google)… etc.

LINK


2. Credibility and Effectivenesson CSR Programs

Emergency Dial

Working Conditions in Emerging Markets: Oxfam

Transparency in Supply Chain: AccountAbility


3. New markets

- Better insight into local circumstances & market ‘intelligence’

Inclusive Business Models= including poor as customers!


4. Risk Reduction!

NGO Advantages:1. More effective

Government:

CHANGE

Companies:

Traditionally: lobbying, etc.

Government:Large and lengthy

BureaucraciesNGOs NGOs

Companies:Where change

happens

‘New Orientation’Conflict to collaboration: More effective & cheaper

- WWF and Government- WWF and companies 1- WWF and companies 2

NGO Advantages:

2. Using Business to get message across:

Stakeholder DialogueClass 2

Greenpeace publicly : “Timberland has raised the bar for environmentally and socially responsible

leather sourcing policies in the Amazon,”

Greenpeace privately to CEO Jeff Swartz:‘Die Corporate Scum’!

LINK

NGO Advantages:

3. Managerial Learning:

NGO lack efficiency incentive. Can learn:- Decision-making- Division of labour- Division of labour

- Project finance/management

NGO Advantages:

4. Learning of Technical Issues:

NGOs ‘good’ at social & environmental issues, however

Lack experience in other areas:Lack experience in other areas:- Micro Credit in LDCs

- Carbon trading

Risks of Collaboration?

1. Window dressing

= “Green-washing”???:

Damage to NGO & Bus. long-term Reputation

- Is core management on board?

- Partnership based on core strategic & operational issues?

2. Transaction Costs

What is ROI???- ‘Overheads’ of collaborating: strategy, policy, goals- Need indicators to measure benefits against costs

3. Information leakage

- NGO still has ‘Watchdog’ function- Important to have viable policy/agreement framework

Agenda




4. Questions on CSR Lab and CSR Classes

Reading:1. “A Guide to Ethical Investing”, IMA, 2008

4. Questions on CSR Lab and CSR Classes

Arguments for CSR

2. Good for Business:

1. Risk management2. Reputation management

3. Brand differentiation4. Employee satisfaction

5. Innovation and learning

Class 1

5. Innovation and learning6. Access to capital

7. License to operate8. Financial performance

Can companies team up on CSR initiatives?… in same sectors, different sectors?

1. Socially Responsible Investment

2. Ethical Banking … (= ‘Finance’)

What is SRI ???How to define?

SRI:

Definition:

1. Investment Strategy …

2. … which seeks to ‘optimize’ financialreturn and social and environmental good

SRI

$ 2.71 trillionIn US

Social Investment Forum, "2007 SRI Trends Report"

- 10% of global investment- To become mainstream in 10 years

Dow Chemical:Napalm and Agent Orange

June 1972, Trang Bang (Pulitzer Price)‘Girl in the Picture’: Phan Thi Kim Phuc

So, what is SRI?

Basically:

Buying stock in (= supporting) Buying stock in (= supporting)

companies that don’t do ‘badbadbadbad’ business.

What are BADBADBADBAD Companies ???Examples?

“Bad”“Bad”“Bad”“Bad” Companies:

1. Business Activity: Product or service is questionable (weapons, tobacco, …).

2. Stakeholders: neglect or harm

Multinational Monitor: 10 Worst Corporations/year:- 2007 and for previous years

Russell Mokhiber lists the 100 Worst Corporations of the decade(1990-2000).

Good Companies:

???Examples???Examples???

Good or BadBadBadBad ???

LINK

What do you think?

Social Funds

Tony Hayward

Good or

BadBadBadBad ???

Economic

Social


United Nations World Summit Outcome Document (2005):

"interdependent and mutually reinforcing pillars"

Equitable

Sustainable

Environment Viable

Bearable


LargerGrows or bought

Investors

Smallresponsiblecompany

Largersuccessfulcompany

Out ofbusiness

Grows or boughtby larger company

OR

Investors

Investors

Short term goals>

Long term goals

Investing in


What does it depend on, What does it depend on, what neutral way to

determine???

Depends on Rating Criteria:

1. Are indicators improving over time

2. Ranking of

Does this work?

2. Ranking of companies

SRI

3 Strategies:

1. Screening1. Screening2. Shareholder Advocacy3. Community Investment

SRI

3 Strategies:

1. Screening

= Choosing stocks based on specific social and environmental criteria .

Good Companies:

Green Money Online Guide - socially-responsible companies.

SustainableBusiness.com - newsletter profiling socially-responsible companies.

Good Money - companies with good records.

Clean Edge - companies involved in renewable energy, alternative transportation, clean water, and non-hazardous materials.

Renewable Energy Stocks - reviews exactly what you think they would. Renewable Energy Stocks - reviews exactly what you think they would.

Responsible Shopper lists companies according to various criteria.

SocialFunds.com has SR information about hundreds companies.

MoneyWisdom.com Links to lists of socially responsible companies.

PETA lists which companies do and don't test their products on animals .

Responsible Consumption highlights products that are organic, eco-friendly, sweatshop-free, etc.

2 Investing Options:

1. Individual stocks

- Open account with a broker and buy and sell yourself

2. Mutual Funds2. Mutual Funds

- Buy shares in a mutual fund and let someone else choose the stocks – large amounts of stocks in many companies

Buy shares → own portion of company (albeit small)

Shareholder

ShareholderShareholder

Shareholder

Shareholder

Shareholder

Company

Mutual Funds

Investment Policy

Companiesconcerned withSocial Issues

Companiesconcerned with

Mutual Fund

concerned withEnvironment

Socially Responsible Mutual Funds:Socially Responsible in General: Domini, Citizens Trust, Calvert Group(Java), PAX World Fund

Environmentally-Oriented: Green Century and New Alternatives

Cruelty-Free (no animal abuse): Cruelty Free Value Fund

Women -Oriented: Women's EquityWomen -Oriented: Women's Equity

Gay/Lesbian-Orinted: Meyers Pride Value Fund

Water-Related: Summit Global

Pension Funds

Pension Fund

Activist Groups

Citizens

Companiesconcerned withSocial Issues

- Government-controlled- Huge player

‘Moral Beacon’ ???‘Upholders of Virtue’ ???

Investment Policy

Companiesconcerned withEnvironment

Pension Funds

1. Norwegian Government Pension Fund:Mandate: Avoid "investments which […] contribute to unethical acts or omissions…”:- humanitarian principles- human rights- environment- environment

2. UK pension fund disinvested from BAE Systems due to ‘Campaign Against Arms Trade’

How does it all work?

Stop buying stock …(in bad companies)

Stock Price

Company does not loose money, but …

2 impacts ???

Stock Price

Stock Price

… harder to borrow money,less investment and expansion …less investment and expansion …

… and ???

Stock Price

… CEOs receive much compensation in form of Stocks … corporate officers take the hit

Source: Link

And of course vice versa :‘Good’ companies can borrow more and

CEO’s get rewarded for ‘behaving’!

Source: Link

SRI3 Strategies:

2. Shareholder Advocacy

Company

“Filing a Resolution”

Mutual/Pension Fund




2. Shareholder Advocacy

Filing shareholder resolution : ‘encourages’ or ‘requires’

Passingof resolutions

- Public awareness- Media attention

- Prompt dialog with corporate decision-makers

OR

3 Strategies:

3. Community Investment:LINK: Community Investing Center

“Community investing is capital from investors that is directed to communities underserved by traditional financial services.”

‘Underserved’(= poor)

Community

Investors

Investors

Investors

InvestorsCapital

Credit, Equity, Capital

Small Business

Community Service:- Healthcare

- Housing- Childcare

SRI

3 Strategies:

3. Community Investment

Assets in community investing institutions:Assets in community investing institutions:

$4 billion (1995) to $19.6 billion (2005)

Fastest growing type of SRI

SRI

What do you think???

Does it work?Does it work?

1. Social Responsible Investment

2. Ethical Banking … (= ‘Finance’)

Ethical Banking

1. Private Ethical Banking

2. Private Regular Banking

3. Institutional Banking

Ethical Banking


Have you heard of ???


Ethical Bank

Investor

Investor

Savings

EthicalBusinesses

Ethical Bank

Investor

Investor

Savings

EthicalProjects

Conventional banking Ethical banking

Objective?



Objective? financial gains social and financial gains

Invests where?




Invests where?

In projects/businesses with highest IRR

in companies that improve society and the environment

Decisions made by?


made by?



Invests where?

Highest IRRin companies that improve society and the environment

Decisions made by?

Management Staff and customers

Transparency


Transparency of investments?



Invests where?


Decisions made by?


Transparency



no information about what it does with depositors’ money

information about all the activities it finances

Your influence?



Invests where?


Decisions made by?


Transparency



no information about what it does with depositors’ money

information about all the activities it finances

Your influence?You …

can't decide where your money is invested

can choose the activities you wish to finance: renewable energy, fair trade, etc.

UKUK

Netherlands

UK

UK

UK

Germany

USA

UK

Norway


Narrower profit margins:

- Few offices

- Operate mostly by phone, Internet or mail

Micro Credit:

Grameen Bank (Dhaka, 1983)Muhammad Yunus (Nobel Peace Prize, 2006)

Today: Microcredit interest rates 24-30%vs. 36-120% from private money lenders

What do you think?

- India’s largest micro-credit company- Backed by George Soros

- Raised over $350 mil on stock market- Outperform most banks!!- Outperform most banks!!

India: 30 million households accessed micro-loans

Source: LINK

Link: BBC Article

Ethical Banking


Link: Credit Agricole


www.equator-principles.com

LINK

In Hungary:

Ethical Banking3. Institutional Banking

IFC Performance Standards on Social and Environmental Sustainability

EBRD Environmental and Social Policy Performance Requirements

World Bank, etc.

Summary:

Socially Responsible Finance and Investment

Finance: Ethical BankingFinance: Ethical Banking



3. Institutional Banking

Investment (SRI)

1. Screening

2. Shareholder Advocacy (Mutual Funds)

3. Community Investment

Agenda





Documents

Syllabus developed by Jens Trummer - vse.czkp.vse.cz/wp-content/uploads/2011/07/Class5.pdf · Syllabus developed by Jens Trummer. ... “Our Common Future ... Individual stocks