CSR Today Jan-Mar 2013

publisher’s note

Are we serious about Corporate Social Responsibility?

E Rajesh Tiwari Publisher rt@iccsr.org

“One fact remains that we are living in a critical time, where global supply of natural resources and ecosystem services are declining dramatically”

ven as government puts up new company bill that encompasses CSR as mandatory spent, the companies will be required to take CSR in a more scientific manner. With an aim to improve corporate governance, the government has approved various amendments to Companies Act, including mandatory earmarking of funds by companies for Corporate Social Responsibility (CSR) spending. As per the amendments approved by the Union Cabinet , the companies would also have to give preference to the local areas of their operation for such spending. The companies would have to either implement mandatory CSR spending or “cite reasons for non-implementation” or any short-fall, as per the proposed amendments. One needs to appreciate efforts of the government and Indian Institute of Corporate Affairs. Both have been very active in putting up a proper suggestive framework for this bill for the right audiences and for co-ordinating and ensuring that the bill has right contents. Their work will increase many fold in coming years as after passage of the bill, corporates will look towards Government for Guidance for implementing CSR activities correctly and rightly and we hope it will guide them to spend money as per stakeholders’ needs and aspirations. It is so true, as if your stakeholders are happy then your shareholders are automatically happy! We too would be very happy to assist Indian corporates in ensuring that they not only get to have Global Best Practices but will also be able to show Indian good practices to global CSR fraternity, given our global reach and infrastructural base.

Mandatory or not, one fact remains that we are living in a critical time, where global supply of natural resources and eco-system services are declining dramatically, while demand for these resources is escalating. Businesses

can use CSR and corporate sustainability to produce direct benefits for the bottom line.

The companies can achieve operational efficiencies by reducing energy and materials as input factors for production. Wastes can also be reduced and materials can be recycled.

These sorts of actions from eco-efficiency can produce concurrent environmental and economic benefits for the company and thereby contribute to stronger financial performance and more positive profitability.

Managing potential risks and liabilities more effectively through CSR tools and perspectives can also reduce costs. Using corporate responsibility and sustainability approaches within business decision-making can result not only in reduced costs but can also lead to recognizing new market opportunities.

There are various studies that have examined the relationship between CSR and corporate financial performance and most of the evidence suggests that the links are positive. According to a study by Tima Bansal, executive director of the Network for Business Sustainability at Western University’s Richard Ivey School of Business, CSR is significant to a company’s long-term survival. Bansal tracked the progress of 211 firms deemed socially and environmentally responsible in the early 1990s over the subsequent two decades. She compared their performance with that of an equal number of companies not identified as responsible. She found that businesses with sound CSR principles – equitable wages, displays of philanthropy, marked efforts to reduce carbon emissions – were more likely to survive that 20-year period. “I don’t think there’s one big company that hasn’t thought about CSR,” says Bansal.

With new company bill coming into force, we need to ask Indian companies if they are ready to take a plunge? Seriously!

January-March 2013 | CSR Today | 1

Contents 10 cover story

january-march 2013 | vol. 0i | issue 01 Printer and Publisher: Rajesh Tiwari EDITORIAL Executive Editor: Sanjeev Verma Copy Editor: Tinu Joseph INDIAN CENTRE FOR CSR ADVISORY BOARD Pankaj Pachauri, Ted McFarland, Mag. Martin Neureiter, Chandir Gidwani, Lou Altman, Kingshuk Nag, Toby Webb, Anil Bajpai, Nikos Avlonas, Rajesh Tiwari, Satish Jha, Amit Chatterjee, Jitendra Bhargava, Namita Vikas, Dinesh N. Awasthi, Kapil Dev, Dr. Kamal Kant Dwivedi, Sanjiv Kaura CSR Today Advisroy Board Rajweer Kapoor, Alok Goel, Seema Tiwari PRODUCTION, CIRCULATION AND LOGISTICS Hardik C CIRCULATION SALES CR Tiwari

10 Unilever CEO, Paul Polman: Sustainable sourcing ‘doesn’t have to cost more’ 16 The Four Dimensions of Sustainability 21 Case Study: Sustaining the Ecosystem for Water, Wildlife and Community

SUSTAINABILITY ENVIRONMENT

08 17 Thoughts on CSR in India Column by Tobby Webb, Founder and Chairman, Ethical Corporation

CORPORATE STRATEGY

23 Measuring Shared Value Column by Melissa Scott, Consultant, FSG

CSR COMMUNICATION

24 How to Benefit from Authentic CSR? Communicate Authentically!

CASE STUDY

32 BHP Billiton: Linking ESG Metrics to Executive Pay

ETHICS SUPPLY CHAIN

34 Ethical Sourcing @ Walmart Audit Process

SUSTAINABILITY INVESTMENT 36 Generating a Return on Investment

CORPORATE TRANSPARENCY 38 Transperancy Leads to Longterm Sustainabillity

HEAD OFFICE CSR Today Indian Centre for CSR, 601, 6th Floor, Technocity, Plot No. X4/5 A, TTC Industrial Area Mahape, Navi Mumbai- 400701 (India).

Tel: +91 22 2778 8481 / 82 Fax: +91 22 2496 6803 Email: editor@csrtoday.net Website: www.iccsr.org REGIONAL OFFICES NEW DELHI Regional Director: V Chopra Vice President: Bhanu Pratap Singh CHENNAI Regional Director: DK Karthikeyan MUMBAI Assistant Vice President: Chaitali Chatterjee Senior Manager: Dinesh Upadhyay Manager: CR Tiwari Printed, Published and Edited by Rajesh Tiwari on behalf of Indian Centre For Corporate Social Resposibility, Printed at Jayant Printery, 352/54, J.S.S. Road, Murlidhar Temple Compound, Near Thakurdwar Post Office, Mumbai 400 002 and Published from Indian Centre For Corporate Social Resposibility, 106/A, Nirman Kendra, Plot No.3, Dr. E. Morses Road, Mahalaxmi Estate, Mahalaxmi, Mumbai 400 011.

Editor: Rajesh Tiwari Disclaimer

ESG INVESTMENT 29 The Next Step for ESG

Investing: Moving from What and Why to How

REGULARS

01 Publisher’s note 03 CSR News 40 Book Review

advertisers’ index: ONGC Inside Front Cover | Petronet LNG Limited Back Cover

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CSR News New Companies Bill focus more on CSR

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he Companies Bill 2011, approved by the Union cabinet, lays special focus on corporate social responsibility. The Act is likely to be passed during the winter session of Parliament. It makes companies answerable towards corporate social responsibility and makes it mandatory for companies with a net profit of Rs 5 crore or more to spend 2 per cent of its profit after tax on CSR, Bhaskar Chatterjee, Director General and CEO, Indian Institute of Corporate Affairs, Ministry Corporate Affairs, said.

Bhaskar Chatterjee, Director Delivering his address at the 13th Annual Greentech General and CEO, Indian Global Conference on Environment and CSR, he said Institute of Corporate Affairs, not spending or even failing to report the same in the Ministry Corporate Affairs report to Ministry of Corporate Affairs (MCA) attracts fine of Rs.50 lakh and even imprisonment of 2 years. The companies are answerable to its shareholders and stakeholders and all those affected by its business. Cheque-book charity where you give a cheque to a temple or an organisation and forget and think that your CSR activity is over is not CSR. Anything done to your employees is not CSR, it is a human resource activity. Anything done by volunteers of your organisation cannot be counted as CSR. “We will soon have a meeting with the Governor of Reserve Bank of India urging them to make these rules/guidelines also applicable to all the banks in the banking sector,” he said .

Microsoft Employees contribute $1 bn for Community

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icrosoft has announced that its U.S. employees have raised $1 billion in cash since 1983 for 31,000 nonprofits and community organizations around the world. The company is commemorating its 30th Annual Employee Giving Campaign. Sponsorium, a cloud-based community investment tool provider, and SiMPACT Strategy Group, facilitator of LBG Canada, have created a new strategic alliance to address the needs of corporations as they become more

involved within their communities. The partnership aims to deliver greater efficiency and analysis into the field of community investment. ConAgra Foods Foundation has released new research about actions to reduce food insecurity. The report, An Overview of the Effectiveness of Various Approaches to Addressing Food Insecurity in the U.S., identifies factors that have the greatest impact on the problem, including the Food Stamp program, the National School Lunch Program, and low food prices.

Indian Centre for CSR founder nominated as International Green Award judge

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ajesh Tiwari, Founder & CEO has been nominated as judge of prestigious International Green Award. English impressionist, stand-up comic, actor, singer and writer Alastair McGowan is hosting this year’s International Green Awards at the iconic Battersea Power Station. McGowan who is as an ambassador to WWF-UK, part of the global World Wide Fund for Nature , campaigns on a number of environmental issues and thus, the ideal candidate to headline this ‘green’ themed gala evening and sustainability showcase.

The continuing success of the International Green Award, the leading platform for sustainability intelligence, leadership and innovation underlines how important sustainability and responsible business has become globally. These green ‘oscars’ play a crucial role in promoting the principles of environmental responsibility to a wider commercial audience. Awards have always been well placed to act as beacons of innovation and leadership as experts recognise organisations who are paving the way for a more sustainable future. This award will honour a globally significant recipient individual who has made an extensive and laudable contribution to sustainability.

January-March 2013 | CSR Today | 3

CSR | NEWS

Walmart strengthens sustainable goals with new initiatives

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almart further strengthened its commitment to a sustainable global supply chain by announcing a series of initiatives to make the company’s supply chain in the United States, China, and around the world more sustainable.

At an event in Beijing with government officials, nongovernmental organizations (NGOs), academics, suppliers and company associates, Walmart said the company will use the Sustainability Index to design more sustainable products, make its global supply chain more socially and environmentally accountable and responsible, and incentivize merchants to

make sustainability a bigger part of their day-to-day jobs.

“Walmart and the Chinese Government, along with local NGOs and suppliers, have worked together and independently to find new solutions and models for sustainable growth,” said Gary Locke, U.S. Ambassador to China. “Today’s announcement will help accelerate the good work under way to make affordable and sustainable consumer goods more ac-

cessible here in China and around the world.”

The additional initiatives will build on the broader sustainability goals Walmart set at the China Sustainability Summit in 2008.

By the end of 2017, Walmart will buy 70 percent of the goods it sells in U.S. stores and in U.S. Sam’s Clubs only from suppliers in the United States, China, and around the world who use the Index to evaluate and share the sustainability of their products. This change will involve suppliers who produce goods in categories where the Index is available.

Deloitte survey: CFOs playing bigger role in driving sustainability efforts

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early one-half (49 percent) of CFOs see sustainability as key driver of financial performance. Two thirds of CFOs say they are involved in driving sustainability strategies in their organizations, and more than half say their involvement has increased over the last year, according to a global survey launched by Deloitte Touche Tohmatsu Limited (DTTL), Sustainability: CFOs come to the table. The survey – representing 250 CFOs in 14 countries across five continents – provides global insight into how increasingly more CFOs are engaging with sustainability to support their business goals, and operationalizing sustainability to gain a competitive advantage.

“Companies are sitting up and taking notice that sustainability is not just a brand or a corporate responsibility element—it is becoming a key driver of financial performance and the future of business,” says Dave Pearson, Deloitte Sustainability Leader, DTTL. “As such, CFOs have begun to take an active role in driving the execution of sustainability strategies and making key organizational changes within their organizations, such as introducing more sustainable technology and deploying environment-friendly policies.” Sustainability seems to be becoming 4 | CSR Today | January-March 2013

increasingly operationalized, with the percentage of CFOs and COOs accountable to their company’s boards for sustainability issues nearly doubling from 20 percent to 36 percent in the past year. As such, CFOs have become focused on a number of sustainable operating practices.

As integrated reporting gains momentum, along with a growing number of green credits and incentive measures, CFOs placed greater importance on sustainability aspects of reporting. The majority of CFOs reported a meaningful impact from sustainability concerns on both financial reporting – 74 percent – and tax matters – 54 percent.

To further reduce the footprint of company travel and energy use from data centers, CFOs plan to invest in three specific areas: video conferencing (56 percent), data center efficiency equipment (52 percent) and electric vehicles (35 percent).

This global survey reveals the growing importance of sustainability in operations and its concrete impact on business performance. Deepening CFO involvement in – and responsibility for – sustainability issues could well signal deeper shifts within a number of organizations.

CSR | NEWS

TCS releases 2011-12 Sustainability Report

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ata Consultancy Services, the leading IT services, business solutions and outsourcing firm released its sixth Corporate Sustainability Report under the Global Reporting Initiative (GRI) 3.1 framework. The report highlights TCS’ perspective on sustainability including corporate governance, human resources, corporate social responsibility, health, safety and environment management including the activities of its Eco-Sustainability Business Unit during the financial year April 2011-March 2012.

The TCS Sustainability report has been externally assured and has received an A+ rating check for having reported on a maximum number of parameters. This rating check has been further validated by the GRI. “Our annual Sustainability Report is a good indicator on the progress we have

made on the various goals we have set across the organization. We continue to drive various environmental and other community initiatives that aim to promote sustainable practices across the organization and our stakeholders,” said ­Ajoy Mukherjee, Executive Vice President, Head Global HR and Corporate Sustainability at TCS. Some of the key highlights of the report are: • Achieved 28% decrease in consumption of electricity in terms of kilowatts per person* • Achieved 31% reduction in per person carbon footprint (Scope 2)* • Achieved 13% reduction in per person fresh water consumption* • Achieved 72 % decrease in paper consumption* • Over 58,362 person hours was spent on volunteering effort in CSR activities

• About 57,90,604 beneficiaries were reached • Over 11,141 persons were made literate in FY 2012 out of a total of over 200,000 through TCS Computer based Functional Literacy program • As many as 20,800 farmers were covered through mKRISHI in 8 states of India (*Reductions given are over the baseline year 2007-08) The TCS Sustainability report 201112 focuses on TCS’ global operations, and on significant economic, environmental and social factors that impact the way TCS does business, including its relationships with key stakeholders. The Sustainability Reporting Guidelines of GRI are used to illustrate TCS’ progress and performance in Corporate Sustainability activities.

RB joins The Sustainability Consortium

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eckitt Benckiser (RB), a global consumer goods leader in health, hygiene and home, announced today its membership in The Sustainability Consortium (TSC), an independent global organization that creates sustainability standards for consumer products.

“Successful collaboration between retailers, suppliers and producers will enable more transformational change on sustainability,” said Frederic Larmuseau, President, RB North America. “We look forward to sharing our knowledge with the ultimate goals of establishing a robust dialogue with our retailers and providing consumers with more sustainable choices.”

“We are excited to be joining other leading companies in the Sustainability Consortium. I look forward to sharing the valuable expertise gained through our lifecycle Carbon20 program and learning from other members’ experiences,” said Dave Challis, Sustainability Director at RB. “A lifecycle approach helps us to make balanced decisions about products’ sustainability. It underpins better design, improves supplier impacts and communication with

consumers and is essential to make the most progress with products from start to finish.”

Earlier this year RB announced they had hit their Carbon20 target for reducing greenhouse gas emissions by 20% eight years early. This performance is based on reducing emissions throughout a RB product’s lifecycle, from raw material sourcing to disposal, and is equivalent to taking 3 million cars off the road. RB was also recently named to the 2012 Carbon Disclosure Project’s Global 500 Carbon Performance Leadership Index. Other recent achievements highlighted in RB’s most recent Sustainability report include: • 16% reduction in fresh water usage (per unit of production) versus 2000 • 5.4 million trees planted since 2006 as part of Trees For Change®, effectively making RB’s manufacturing sites carbon neutral • 23% reduction in accident rate versus 2010 (92% reduction versus 2001) • 775,000 children reached with Save The Children since 2003 (175,000 in 2011) January-March 2013 | CSR Today | 5

CSR | NEWS

‘PepsiCorps’ Comes to India

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epsiCo, one of the world’s largest food and beverage companies, has announced the India launch of PepsiCorps, a one-month on-the-ground program that leverages an employee’s business skills to make a positive impact on the world. As part of the program, the PepsiCorps team of eight employees has initiated water conservation projects with Bhoruka Charitable Trust (BCT), Churu district - Rajasthan, which aim to develop a long-term, sustainable solution to tackle the water scarcity challenges faced by the Bhorugram community.

PepsiCorps provides employees with an international business experience that encapsulates PepsiCo’s ‘Performance with Purpose’ agenda, the belief is that longterm profitable growth can be achieved by

delivering a healthier, sustainable future for people and our planet. PepsiCorps gives employees a close-up view of real-world conditions and allows them to apply their business skills and expertise to project work that benefits communities in need around the world. Being part of a crosscultural and cross-functional PepsiCo team, these employees come away from the program with enhanced leadership skills and on-the-ground insights into societal challenges across the world.

Explaining how PepsiCorps supports the development of future leaders within the company, Sergio Ezama, Senior Vice President, Talent Management and Development at PepsiCo said, “PepsiCorps is all about going beyond your day job to make an impact in the world. Through this project, we hope to develop the leaders of tomorrow by strengthening skills like flexibility, adaptability and resilience among the participants. Not limited by geographic 6 | CSR Today | January-March 2013

boundaries, PepsiCorps encourages participants to take on a global mindset and be adaptable by working creatively in resource contained rural areas.”

Talking about the project in Bhorugram, Ezama added, “One of our environmental sustainability commitments as part of ‘Performance with Purpose’ is the human right to clean water. In sending a PepsiCorps team to India, we can pass on the skills needed in Bhorugram to conserve water and improve availability in the region.”

PepsiCorps is the company’s first overseas employee skills-based service program. Its pilot project in 2011 entailed working with local Water Boards in Denu, Ghana to improve community access to clean water, boost eco-tourism and teach hygiene in schools. The team of eight employees proposed sustainable development to local community leaders and developed critical professional skills that they brought back to their roles within PepsiCo. PepsiCo has been lauded for its water conservation initiatives across its business operations and agricultural supply chain around the world. PepsiCo has provided access to safe water for more than 1 million people globally with the PepsiCo Foundation and other partners and conserved nearly 16 billion liters of water in 2011 throughout its manufacturing facilities, from a 2006 baseline. In 2009, PepsiCo India achieved a significant milestone, by becoming the first business unit to achieve’Positive Water Balance’ in the beverage world. In 2011, PepsiCo India saved 14.7 billion liters water, which is 8.3 billion litersmore than what it used - taking its Water Positive status in the country to the next level, a fact verified by Deloitte Touché Tohmatsu India Pvt Ltd. This year, PepsiCo received the prestigious Stockholm Industry Water Award in recognition of its innovative and outstanding water stewardship initiatives.

news digest Indian Centre for CSR chooses Lavasa to setup its Global Centre of Excellence in CSR & Environment Management

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ndian Centre for CSR has signed an memorandum of understanding to setup Global Centre of Excellence in CSR & Environment Management at Lavasa. Lavasa is an upcoming international city near Pune. The Centre is set to launch Asia’s first ever MS Program in CSR & Ethical Management along with University of Applied Science Vienna.

With Corporate Social Responsibility being imbibed by most of the corporate in its core philosophy, there is dearth of trained CSR Professional in India and worldwide.

The course will be taught by internationally renowned faculty. The first student intake is slated for September 2013.

The centre will launch postgraduate program in Environment Management, Doctoral and Post Doctoral program in the later part of the year.

Among the first planned hill cities of India, Lavasa is a lake city with international blend. It is set to become a hub of international education programs. The Master Plan of Lavasa has been designed in conjunction with HOK International Limited, USA. The plan is based on the principles of New Urbanism which conveniences its residents by placing all essential components of daily life within walking distance of each other. Besides this, architectural considerations such as land character, building frontage and other design guidelines have also been taken into consideration while making the Master Plan.

CSR | NEWS

American Employees prefer a Company with good CSR

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orporate Responsibility (CR) Magazine, in conjunction with Allegis Talent2, announced the findings of the publication’s first corporate reputation survey which found that 75 percent of Americans would not take a job with a company that had a bad reputation, even if they were unemployed.

CR Magazine commissioned a poll of over 1,000 employed and unemployed Americans to gain insights into how both corporate reputation and transparency can impact job decisions.

“The results of the new survey underscore American’s desire to align themselves with organizations that do more for society than increase their bottomline. Even during a time when Americans face many fiscal challenges, most people would rather continue their search for employment than work for a company that has questionable business practices or ethics,” said Elliot Clark, CEO of Corporate Responsibility Magazine, which hosts the Forum.

“The survey results demonstrate that there is a cost of bad business behavior, which significantly affects the abil-

ity to attract and retain people. At the COMMIT!Forum, we bring together companies to explore best practices and examine the costs of bad behavior and the endless opportunities that result from ethical business practices.”

The findings also revealed that of the people surveyed that were currently employed, 58 percent would take a job with a company that had a bad reputation if they were offered more money. However, on average, these individuals would only consider the job if offered double their current salary.

In contrast, the vast majority, 87 percent, would consider leaving their current jobs if offered another role with a company that had an excellent corporate reputation. In fact, most people would only require a 1-10 percent salary increase to consider such a move.

“A positive corporate reputation is extremely high on the list of must-haves for the American workforce, especially as they examine career paths or future employment opportunities,” said Randolph Gulian, Executive Vice President/General Manager, AllegisTalent2.

ICCSR appointed CSR partner for Govt of UP for upcoming Maha Kumbh Mela

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ndian Centre for CSR has been appointed CSR partner for the Government of Uttar Pradesh for upcoming Maha Kumbh Mela. With millions of devotees visiting this Mela, there is urgent need for various public utilities for them. Indian Centre for CSR has taken upon itself to organize various needs through corporate sponsorships. Kumbh Mela, greatest of all gatherings and bigger than even Olympics. This time, 2013 Kumbh Mela is being held from 14th Jan to 10th Mar 2013 in Allahabad, Uttar Pradesh. 4 times during a month more than 10 million people will take dip in holy river Ganga. Apart from a million taking dip almost daily over a month long festival. The total visitors expected to be 70 million over 55 days. The pictures will be beamed to over television across 180 countries. Maintaining cleanliness at the site and keeping the river Ganga clean will be indeed a tough and challenging task and Indian Centre for CSR has taken up this uphill task.

BSE joins Sustaianbile Exchange initiative

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he Bombay Stock Exchange Ltd (BSE) announced on Friday that it has joined the Sustainable Stock Exchanges (SSE) initiative. The SSE initiative was launched by UN Secretary-General Ban Ki-moon and UNCTAD Secretary-General Supachai Panitchpakdi in 2009 at UN headquarters in New York City. The BSE has been the first amongst global peers to join five other leading exchanges that have publicly committed to promoting sustainable investment practices. Other exchanges include the Brazilian stock exchange BM & FBOVESPA, Egyptian Exchange (EGX), Istanbul Stock Exchange (ISE), Johannesburg Stock Exchange (JSE) and NASDAQ OMX made a commitment towards improving sustainability at the Sustainable Stock Exchanges 2012 global dialogue in Rio de Janeiro earlier this year. BSE is also credit-

ed with launching the first-ever live Carbon Index BSE-GREENEX in India, earlier in 2012. The index measures the performances of companies in terms of carbon emissions.

“BSE is committed to working with investors, companies and regulators in playing a transformative role towards enhancing sustainability in Indian capital markets. “We are hopeful that this initiative would help us in further introducing a culture of sustainable business practices amongst BSE’s listed companies,” BSE’s Interim CEO Ashishkumar Chauhan said in a statement in Mumbai. The initiative aims at exploring how exchanges can work together with stakeholders to enhance corporate transparency and performance on ESG (environmental, social and corporate governance) issues besides encouraging responsible long-term approaches to investment.

January-March 2013 | CSR Today | 7

Corporate Responsibility

17 Thoughts on CSR in India

The estimated two millions NGOs in India, the vast majority seem more interested in project cash than campaigning

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’ve just spent nearly a week with the Indian Centre for CSR. It’s been a fascinating experience; my first trip back to India in 16 years. It’s a total cliche, but much has changed, while much remains the same. Here’s a few random thoughts after a week or so here, two conferences and lots of meetings with head of sustainability, CSR, CEOs and senior government officials:

Toby Webb is the founder and chairman of Ethical Corporation and Member Advisory Board Indian Centre for CSR. Toby is also cofounder of Stakeholder Intelligence Ltd. SI provides training, facilitation, advice and contract research on sustainability to large companies and other clients. He teaches Corporate Responsibility at Birkbeck College, part of the University of London, on the MSc. Corporate Governance & Ethics and on the Strategic Human Resource Management MSc. From 2006-8 Webb co-chaired the UK Conservative Party’s Working Group on Corporate Responsibility, which outlined CR policy, some of which the current UK Government is now implementing.

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Government, although slow to understand what CSR can mean, has been catching up since 2008, and is set to act. A 2% net profit CSR minimum spend is set to come into law by the end of 2012 (for companies making over $250,000 net PA) and that may raise considerable awareness. Or it may just drive further philanthropy. Much may depend on the guidance available. A director will need to be responsible though, and boards will need to demonstrate they have discussed how and where to spend their 2%. It will be a fascinating experiment.

State company bosses are already assessed partly on CSR as of two years ago

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There’s a cynicism around the scale of corruption in India. It seems to be

The super rich Indian oligarchs appear very cut off from the modern CSR debate, as one might also find in Russia. But more and more attention is turning to corporate power, the notion of the captive state and corruption in general 8 | CSR Today | January-March 2013

sapping national confidence in solutions.

The government appears to be slowly recognising this (see today’s papers in India, for example)

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The media sector, despite growth, has not covered itself in glory in holding government and business to account.

There’s a lack of awareness of the value and processes of investigative journalism NGOs seem fairly tame. A few firebrand political actors and some focused NGOs are doing good work in putting corruption on the agenda. But from the estimated two millions NGOs in India, the vast majority seem more interested in project cash than campaigning

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There’s an inherent compliance mentality, as elsewhere, when it comes to international standards related to CSR/sustainability. ISO 26,000 and GRI are seen as standards, when of course, they are not

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A national conversation is needed about what Indian CSR, beyond philanthropy, should look like. Clearly any change management movement will have to be firmly based in Indian culture, history and values

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The political landscape is volatile. So when populism against big business may win votes, rapid action around CSR issues is entirely possible

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The rise of media, social media and mobile/web connectivity means Indians from all walks of life now know more than ever before. This breeds the cynicism

Corporate | Responsibility mentioned in point one above, but may also mean spontaneous protests and growing mistrust of business could blow up first.

There were corruption riots in Delhi just a month ago over “CoalGate”

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The super rich Indian oligarchs appear very cut off from the modern CSR debate, as one might also find in Russia.

But more and more attention is turning to corporate power, the notion of the captive state and corruption in general. (see new political party focusing only on corruption for evidence)

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The Bombay Stock Exchange, incentivised by the UK and German development agencies, is setting up a Carbon Index, and is potentially interested in a more holistic, sustainability-based approach

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Bottom of the Pyramid business models, much celebrated in the West, barely get a mention at business/academic/government CSR conferences here.

That’s based on a sample of two, but still struck me as curious

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There’s increasingly concern that we have over-romanticised BOP and small business growth and some suggest we’ve over estimated what SME’s can do to close the jobs gap

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The jobs gap is the issue of the future.

Mumbai, for example, likely has millions of (relatively) economically inactive people. What they will all do for a living is going to be come India’s most difficult CSR issue in the near future

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The culture of bureaucracy here remains staggering. Just checking into a hotel seems to take thirty minutes of form filling. Forms that you know no-one will ever look at again

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Environmental awareness is close to zero. Over a week, having met probably 50 executives, NGOs, academics and

others, only the Bombay Stock exchange, who are being paid to, mentioned environmental issues. The water crisis, for example, is surprisingly under-discussed

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Slower growth (under 5% now for 2012) may accelerate the agenda. Or it may hold it back, depending on the type of pressures individual companies feel as a result. My guess is the latter, but it’s hard to say with any certainty

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Whilst corruption is top of the national and political agenda, big companies are reluctant to sign Transparency International’s integrity pledges. Apparently they don’t feel they can deliver I should point out that all this is gleaned from a week or so in Mumbai and Delhi.

Next time I need to seek out the innovations in rural India that I’ve seen before and heard much more about. What’s curious is how little discussed they seem to be in the CSR community here.

Opportunity to showcase your CSR Activities by participating in Maha Kumbh Mela 2013 Kumbha Mela - one of the biggest congregation of human-beings on earth is participated by more than 6 crore people and will last for 55 days ( from 14th Jan to 10th March). Maintaining cleanliness at the site and keeping the river Ganga clean will be indeed a tough and challenging task. Indian Centre CSR has taken up this challenge. For starter, we have initiated construction of ‘Chemical Toilets’ for the visitors. These are vital to keep river ‘Ganga’ and environment clean during this event. Indian Centre CSR intends to partner with the leading corporates who are brand conscious in this mega project. It would like to collaborate with them in providing these CSR services.

Your investment will be duly compensated by allowing you create an appropriate Brand Visibility in line with govt guidelines. You may display your message such “ Your Company- Helping to keep Ganga clean all the times.’ the estimated.

Indian Centre for CSR is a “ Not for Profit Organization.” Indian Centre CSR invites proposal from leading corporates for partnership in construct the sanitation facilities. The facilities like modern, non – traditional toilets can be used for branding purposes. The outside, inside and the roof-top of such toilets would be an effective location for promoting the company and its brands.

Come and seize this unique opportunity to showcase your company and build brand equity by partnering with the official partner of UP Govt.. Please see the copy of UP govt. letter declaring Indian Centre CSR as their official partner for CSR activities. Indian Centre CSR request you to join hands by sponsoring the construction of modern toilet at the venue and using the same for brand visibility.

Indian Centre for CSR along with Government of Uttar Pradesh looks forward to your support for “Championing the cause of!Social Returns”.

For more details, contact: Delhi: V Chopra: +91 9560 833 833, Pratap Bhanu Singh: +91-9910668288 Mumbai: C R Tiwari: +91 9224593512, Dinesh Upadhyay: +91 9930 719 544

A Not for Profit Organization

601 | 6th Floor | Technocity | Plot No. X4/5 A TTC Industrial Area | Mahape | Navi Mumbai- 400701 (India) Email: info@iccsr.org | Website: www.iccsr.org

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Unilever CEO | Paul Polman

Sustainable sourcing ‘doesn’t haveto cost more’ “Decoupling business growth from environmental impact is possible and even cheaper than continuing business as usual,” Paul Polman, Chief Executive Officer, Unilever, an Anglo-Dutch multinational corporation that owns many of the world’s biggest brands in foods, beverages, cleaning agents and personal care products. He talks about Unilever’s ‘Sustainable Living Plan’ in an interview with EurActiv’s Outi Alapekkala You have very ambitious targets on the sourcing of agricultural raw materials: you say that by 2020 your aim is to source 100% sustainably. However, in the past ten years, you have only managed to reach a 10% share of sustainable sourcing. How will you reach 100%, in particular while your parallel aim is to double your business? Do you honestly believe this is feasible?

It is a very complex thing, for sure. We buy 7.5 million tonnes – about 350 different agricultural materials, that’s a broad range of raw materials. In order to move that to sustainable sourcing, you need to work with a broad coalition. You need to bring in the knowledge of sustainable agriculture and sourcing, train and educate, set up supply chains and in many cases verify the supply chains

to make sure they are sustainable. So it isn’t that easy, and that is why we tackle it at different levels – as there is no single solution.

Firstly, we help with the ‘big materials’ that we have, such as tea and palm oil. We work with the broader industry coalition to get sustainable sourcing. On palm oil, we have created the Roundtable on Sustainable Palm Oil – manufacturers, retailers and consumer goods companies like ours are all included in this and we try to move the market forward together. So, on the big projects we work with the big players.

On the smaller projects – paprika, tomatoes, purple carrot – it’s a little more difficult. A lot of our projects there are with small farmers. One of the things you see in this report is our commitment to integrate 500,000 more smallholder farmers into our supply chain.

January-March 2013 | CSR Today | 11

cover | story ply, and solving broader problems such as malnutrition – but you cannot do it alone.

So you think 100% sustainable agricultural sourcing is feasible in the long-term for a multinational like yours?

I think that there are enough examples in the public domain that make me feel confident that this can be done.

What do your sustainable initiatives mean for the value of your business? I ask this because I have this perception that if something is done sustainably it costs more – because yields may be lower from the same size of land, for example. I imagine that if you ask a farmer to produce in a sustainable manner, you might need to pay them more to do so, to maintain their income level.

Currently, one billion people suffer from malnutrition. Unfortunately, with the economic crisis, that number is going up. Many people have tried to solve the problem of malnutrition with different things but linking more smallholder farmers into our supply chain must be part of the solution.

Therefore, farmers in emerging markets can be self-sufficient with food but also produce a little bit more to form a livelihood and create economies. With our sustainable sourcing commitment, we will reach 500,000 of such small-hold communities.

How will you increase the number of small-scale farmers?

For example, in Azerbaijan we are now working with Oxfam on vegetables. We guarantee the supply for our Knorr product so that there is a market which will bring these people together in a community.

Don’t forget that we have a global tea business where we source a lot of our tea already from smallholder farmers. We also get gherkins from India and paprika from South Africa in this way and are working with the Tanzanian government on getting a whole corridor of Tanzanian smallholder farmers on board.

The main message coming out of this is that you cannot do this alone. It is good for the economy, livelihoods and for ensuring sup12 | CSR Today | January-March 2013

In many cases, it is indeed only a perception that sustainable farming is more expensive. Done well, it actually uses less fertiliser and it doesn’t involve deforestation, which is responsible for 20% of global CO2 emissions. In addition, it often actually gives you a higher yield as well.

Let me give you an example on palm oil: if you get it from deforested land – obtained through illegal logging – you may get two and a half tonnes per hectare. With sustainable farming, this can go up to ten tonnes per hectare. So it is not necessarily a trade-off that because something is more sustainable, it is more expensive.

Often, because people are better trained, it requires less use of water and other materials for soil.

Ultimately, the prices will be decided by market forces. But you can certainly create livelihoods and have a responsible supply. There will undoubtedly be some challenges along the way where it might be more difficult and you need to make an investment.

When we start small-hold farmer projects, it does cost a lot of money in the beginning. A company like ours can afford that, but you have to make some investments to train people and put the infrastructure in place – all investments you can hopefully share with others.

But on an ongoing basis, small-hold farmers can give us as efficient sourcing as industrial farming does. Frankly, industrial supply alone isn’t enough to supply what the world needs - you need to do both.

How do you plan to communicate your sustainability pledge to consumers?

On agriculture, we are one of the founders of the Sustainable Agriculture Initiative, which we have broadened to the entire industry.

It is very important that we enrol consumers into a sustainable model. It is not only agriculture; it is all aspects of resource use. There are many different ways of doing this. I think that the most important way is what we are doing: help the consumer by building sustainability into our innovation programme.

cover | story For example, we have a Comfort one-rinse fabric softener whereby the consumer only needs to rinse clothes once. 125 billion laundry washes are done each year using our detergents. If you only rinse once – compared to rinsing twice or three times – 500 million litres of water can be saved right there. This is why we say that sustainability drives innovation. Consumers get a better-performing detergent at lower temperatures. So you save energy as well.

The second thing you need to work on is ensuring consumers have transparent communication. This can be on packages and in advertising. But now, consumers are inundated by many different claims such as ‘bio’, ‘green’ or ‘organic’, and they aren’t always sure of what they mean, so we have to provide that transparency.

Then we also have to provide consumers with choice. Take Lipton - we moved it to sustainable tea. We know we cannot charge more for it, as consumers aren’t ready for that. We know that we cannot change its taste, as consumers don’t want that. But if you have sustainable tea as well as having the right price and taste, then consumers will buy it.

When we moved with the Rainforest Alliance to sustainable tea, we saw our volumes go up by 8-10% in many places where we did that. So consumers are, in some cases, asking for this already and are ready for it and in some very few cases they are willing to pay for it.

But in general they are not yet ready to pay for this, however, especially with the economic crisis. So it is up to us to provide added reasons for buying, such as by saving energy and packaging and providing a better performance.

Perhaps you don’t charge more for sustainable goods at the moment, but what about in the future?

As global talks on pricing natural resources – such as water and forestry – gain momentum, the trend might drive all prices up in the future, putting sustainable producers at a huge competitive advantage – such avoiding potential extra taxation on unsustainable use of natural resources.

I don’t know what the future will be in terms of taxation and pricing as a lot of factors come into that equation, including supply and demand, government policies and population growth. So a lot of things ultimately affect the price of a product. The one thing I know for sure is that if we don’t create more sustainable sourcing, then we will not have the source in the first place. By focusing on this, we guarantee that we can continue to feed the world, in my opinion.

I also want to emphasise that sustainable sourcing does not have to cost more.

Sustainable sourcing can be done in a way that is fair to society and has a competitive price. This is what we are trying to say. People think that for something to be sustainable it must cost more money.

The reason for this is that the initial sustainable products that came on the market were advertising things and charging more for it.

We are saying a totally different thing - we are advocating integrating sustainability into innovation programmes and products as a way of doing business.

We are now moving all Ola’s ice cream cabinets to cabinets using natural refrigerants’ into ones without HFCs, a pollutant, and we have other companies such as Coca-Cola joining – increasing the demand for these cabinets and thus lowering the production cost of these cabinets. In addition, these cabinets use less energy and emit less C02. Consumers are not willing to pay more for that, but if we label cabinets then that will help us.

It doesn’t necessarily cost more money – we have to get out that mindset. We just need to get sustainability into our design and business model from the beginning.

For example, when you introduce drip irrigation system into small-scale farming you see an increase of 30% in yield and reductions in water use of 30-40% – so yields improve and the cost structure for farmers goes down, so it is better for the farmer. For us, it enables us to see what water we can save in our upstream supply chains.

Another example is a new design for packaging deodorants – this helps us to save 15-30% of packaging material and naturally reduces the costs.

In life, many people accept trade-offs. They think that in order to improve their product they need to pay for it. This is not true at all. Going from vinyl discs to digital didn’t increase the cost of music. If you don’t accept those trade-offs, - that something needs to be more expensive to be better or environmentally friendly - you will find solutions.

It is now time for the world to get out of these pre-conceived notions on many of these cases and solve these trade-offs. If you get into an ‘and’ mentality – versus an ‘or’ mentality - where you have better products and lower costs, where you have environmentallyfriendly products and offer better performing products to consumers: that is the model that will win and is the model the world needs.

It is up to us to work together to overcome the apparent trade-offs of the past. This is what we are really saying with this plan.

Could you expand more on the nutrition part of your Sustainable Living Plan? And perhaps a word on responsible food marketing.

There are three major commitments that we make as a company: the first is to de-couple growth from environmental impact. The second is to give one billion more people access to health and nutrition. Thirdly, all of our agricultural products will be sourced sustainably by 2020.

A good example of giving one billion more people access to health and nutrition is our hand-washing - 1.3 million children die from infectious diseases like diarrhoea each year. By giving them the chance to use a bar of soap, we can reduce that by 25%.

School attendance will then go up 40% because of reduced sickness and absenteeism.

So, we are rolling out our hand-washing campaigns from 130 million people to one billion – because we operate at global scale.

No government can do that. These are big numbers and we need to do this together.

January-March 2013 | CSR Today | 13

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One of the key things in the world is that you have, on the one hand, malnutrition and one billion people who don’t have sufficient access to food and on the other hand, at the same time there is an obesity problem. And we are working on both of them” It’s the same with nutrition, we make clear commitments. We have been improving our products, using less salt, sugar and transfatty acids. But what we are now saying is that we are accelerating the number of products with a positive health profile. In our report, one of our fifty measures taken is to put clear standards behind this.

So, part of the sustainable model is to take in a broader view and not only have sustainable sourcing but to have a socially-responsible model. We are also saying that we will bring 500,000 small-scale farmers into our supply chain, creating economic empowerment opportunities. So we are making social, health and nutrition commitments for growth as well as sustainable commitments.

How would you define your role as an industry player in people’s dietary habits? Do you try to affect them? Do you claim a role in a healthy diet?

Absolutely – one of the key things in the world is that you have, on the one hand, malnutrition and one billion people who don’t have sufficient access to food and on the other hand, at the same time there is an obesity problem. And we are working on both of them.

You first have to deal with malnutrition. We have programmes with the World Food Programme where we provide donations and have reinforcements of products like margarine and Annapurna or iodine in our Knorr bouillon.

Obesity is an area where industry needs to take action together in order to tackle the problem. It has to do with nutritional labelling, the formulation of products, advertising to children, encouraging physical activities.

However, it is overly-simplified to say that food companies can solve this alone. If it takes two-three years to agree on actions at EU level then this does not help. If we have to register products in each EU member states where they are not implementing the European one, then it’s very difficult to get improvements as fast.

We want to be a part of the solution. When we get more people to eat our margarine, we have a reduced intake of three kilos a year 14 | CSR Today | January-March 2013

of trans-fatty acids, which we know affect cholesterol and cardiovascular diseases.

Finland has deliberately decided to consume healthier margarine.

It used to have a very high heart attack rate but has now improved, together with exercise and other things. So, the food industry is very much there to find healthy solutions; but together with others.

A lot of our advertising on food goes into changing consumers’ behaviour for healthier diets. Because if life expectancy was to go down, it wouldn’t be good for anyone. And it has actually increased thanks to the availability of food and the quality of nutrition, not because of other things. So the food industry has played a major role in providing healthier, longer lives.

The issue is now that lifestyles have changed, the food industry takes a responsibility, co- responsibility, to help change consumer behaviour not to get a pandemic of cardiovascular diseases. So that is why I feel very good if more people eat margarine instead of butter – your heart can become three years younger in doing so. So, consumer behaviour is an integral part of our plan and more sustainable business model.

Do you feel that you are the best player in the ‘sustainability market’?

This is not a ‘race to the top’. Fortunately, there are a lot of responsible people out there. We would like to show that a company of our size and global footprint not only has the liberty to operate but also the responsibility to do so in a sustainable way. It can be done and it can be done successfully.

To my knowledge, I am not aware of such a holistic plan of any other company of our size. There are many companies that do individual pieces of the puzzle very well. But we really want to lift this up and say that this is a new business model. Our initiative is not just a sustainable project – as tea may be – but is a sustainable business model for how businesses should operate now and for years to come. And this is why it is social, economic and environmental. www.euractiv.com

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cover story

The

Four Dimensions of

Sustainability This Framework is intended to provide a consistent model that allows for introspection within a company, comparison with companies within a sector and across sectors and critical analysis from external observers by kevin moss

R

educing impact on climate change is a challenge many companies are trying to tackle. Businesses across the globe need to take a leadership role in reducing their carbon footprint. Those that develop a comprehensive strategy will save money, increase productivity and gain a competitive edge over those that fail to make any changes. The good news is many organizations are up for the challenge, though many are unsure of where to begin among the myriad of activities on the table.

This paper proposes a Sustainability Framework to facilitate development of a sustainability strategy. The Framework can be used to evaluate the overall scope of current sustainability initiatives, and identify and recommend new actions. It can also be used to provide a structure for critical analysis of an organization’s existing sustainability strategy. The approach was developed based 16 | CSR Today | January-March 2013

on programs at BT and from partners and suppliers that are committed to making a difference.

A Framework for Material and Consistent Corporate Action The Sustainability Framework may be applied to the economic, social and environmental sustainability of the communities in which companies operate. However, for consistency, this paper’s illustrative examples reflect just environmental sustainability. Particularly, the examples are drawn from carbon emissions reduction programs.

The Framework has four broad dimensions of potential actions to achieving sustainability. These dimensions are represented by the four concentric circles shown in Figure 1.

• Direct Impact – emissions due to the energy consumed by the company (directly or indirectly) to carry out its activities.

cover | story • Products In Use - emissions due to the energy consumption of a company’s products and/or services once in the hands of the user.

• Enabled Impact - impact that a company’s products and/or services have on the energy consumption and emissions of the entity that utilizes the product other than the consumption of the product itself.

• Inform and Influence – the opportunity to inform or influence stakeholders on environmental issues and impact of these issues on the stakeholder and on the company.

“Greenwash” is a term that is widely used to describe putting a green façade on otherwise environmentally unfriendly activities.

But what really constitutes greenwash? This Framework can go a long way toward differentiating greenwash from a simple failure to be perfect! The indication of greenwash is when an organization focuses its positive actions and associated publicity in a dimension of the Framework that is of limited materiality, but takes no action – or even worse, conflicting negative action – in more material dimensions. In contrast, an organization that is taking action in material dimensions but does not yet have a comprehensive program across all dimensions is not guilty of greenwash. It is simply guilty of not being perfect.

Figure 1: Four Dimensions of the Sustainability Framework

Direct Impact Direct Impact is probably the best known of the four dimensions in this Framework. It is the bulls-eye of the illustration in Figure 1 and represents the direct impact that a company has on environmental sustainability. It comprises the emissions resulting from the energy consumed by the company (directly or indirectly) to carry out its activities. These emissions are defined by the greenhouse gas (GHG) emissions guidelines, which include carbon emissions resulting from on-site power generation, electricity consumption, fuel usage, travel fleet operations and other activities that are directly carried out by

Partly because of these available structural approaches, Direct Impact emissions are where companies often focus their initial attention. For example, at BT, using UK reporting guidelines, direct carbon footprint was reduced from 1.6 million metric tons to 0.6 million metric tons between 1996 and 2008. This was achieved through a combination of business process change, energy efficiency measures and renewable energy resources.

A significant proportion of that carbon footprint reduction has been enabled by suppliers. This contribution is reflected in the supplier wedge shown in Figure 1. For example, as part of BT’s 21st Century Network design, work with vendors enabled an increase in the operating temperature of network data centers and so a reduction in the energy consumed.

(See sidebar ‘Thinking Out of the Box.’) In another example, PepsiCo has a comprehensive engagement program with its vendors which includes an annual sustainability summit, support from PepsiCo consultants to develop environmental plans, a vendor questionnaire and a commitment to recognize and reward vendor action on sustainability priorities.

ICT1 companies tend to have smaller Direct Impact carbon footprints than those in the transport, manufacturing and energy industries, so why focus so much attention on this dimension of action? Direct emissions reductions provide the experience and mandate for a company to actively work with its customers and other stakeholders on ways to reduce their emissions.

Direct emissions reductions provide the experience and mandate for a company to actively work with its customers and other stakeholders on ways to reduce their emissions the corporation or on its behalf. Quantitative objectives can be set, and there are a growing number of consultancies and software packages that specialize in collecting and presenting this data. Measurable objectives can be set using intensity or absolute targets with many organizations now aiming to be carbon neutral by a certain date.

January-March 2013 | CSR Today | 17

cover | story Products in Use Products in Use comprises the emissions a company’s products and/or services produce once in the hands of end-users. While the products of some industry sectors, such as the food sector, have little or no energy consumption in use and so produce very minor in-life carbon emissions, others produce significant in-life emissions. The fuel or electricity used to power these products is paid for by the end-user and so is the end-user’s direct carbon footprint. The user has some control over consumption, for instance switching off a computer rather than leaving it on standby, or driving at a slower speed. However, although the consumption may be significantly influenced by the end-user, the manufacturer is very much complicit in the emissions (or other environmental impact) through product portfolio, design and usage guidance.

For many businesses, Products in Use emissions can be far greater than Direct Impact emissions. The 2006-07 corporate social responsibility report from Ford Motor Company shows that its direct emissions in 2005 were about 8 million metric tons of CO2. In contrast, Products in Use emissions – through the fuel consumption of their on-road fleet across the world – were about 407 million metric tons. For a telecommunications company selling routers and phones, Direct Impact and Product in Use emissions are of a similar order of comparative magnitude to each other.

Thinking Out of the Box

I

t may seem counterintuitive, but raising the operating temperature of the equipment in a data center reduces the

energy consumed. Data center servers, like any other computer hardware, have specified operating temperature ranges to ensure effective operation, minimize downtime and optimize life span.

Operating outside of these ranges invalidates warranties. But these temperature ranges have changed little since the early days of large mainframe computers when data center standards were established and became the norm. As BT worked with vendors to specify its 21CN network design, it challenged vendors on these operating temperature ranges. Many of the selected vendors responded positively, allowing the flexibility to raise the operating tolerances of their equipment by a few degrees without affecting performance and the warranty. One of the most significant components of data center energy consumption is air conditioning, which ensures ambient temperatures within the ranges specified by the equipment manufacturers. By increasing the upper end of those temperature ranges by only a few degrees, air conditioning use, along with energy costs and carbon emissions, can be reduced significantly. The new 21CN network also consolidated many of BT’s smaller switch sites in a fewer number of larger sites, also greatly reducing energy needs. BT is now working with IT industry sustainability organizations like Green Grid to achieve broader changes in accepted standards.

18 | CSR Today | January-March 2013

Where Products in Use emissions are significant, product producers can take actions to reduce them. For instance, Ford’s sustainability report identifies the actions it is taking, such as increasing engine efficiency. Today, enlightened ICT companies are working to reduce the energy consumption of their products by giving the end user more control in reducing consumption though features such as standby mode.

As with Direct Impact, suppliers can also play a significant role in reducing the in-use impact of the products they sell. While many companies outsource their product manufacturing, this does not diminish their responsibility, through specifying energy related design characteristics. For example, early in 2008, BT started a six-month program to replace its entire line of DECT (Digital Enhanced Cordless Telecommunications) phones with a new line of phones that have about half the energy consumption of their predecessors. This was made possible by working with vendors the prior year on product redesign. Hence, in the Framework, the supplier wedge intrudes into both the Direct Impact and Products in Use categories.

For industry sectors with little or no impact in this category, focus should remain on Direct Impact emissions.

Enabled Impact Enabled Impact is the third concentric circle of the Framework.

In contrast to Products in Use impact, which addresses the energy consumption of the product or service itself, Enabled Impact focuses on the effect a product or service has on other aspects of energy consumption and resulting emissions.

For instance, BT completed a study with Forum for the Future in 2004, which showed that the rollout of broadband services increased the propensity of customers to buy and to use a range of other energy-dependent electronic equipment. While that equipment included computers and peripherals not purchased from BT – thus not Product In Use impact – their usage was enabled or even encouraged by the rollout of broadband, hence the term Enabled Impact.

Fortunately, in the ICT sector this increased energy usage is more than offset by a beneficial impact of the ICT industry as a whole.

Many papers have been written on the positive Enabled Impact of ICT services2. The best known example is using teleconferencing instead of traveling for meetings. While teleconferencing requires electricity to power it and thus has an associated emissions burden, compared to the emissions associated with travel, that burden is small. (See “ICT Sector as an Enabler” for many other examples of enabled benefit in the ICT industry.) Estimates by the Climate Group, GeSi and others of the enabled beneficial impact of the industry range from five to 15 times the burden of the industry. Actions with the enabled dimension are therefore among the most material ways in which the ICT industry can impact global emissions.

There are many examples of products and services with Enabled Impact benefits outside of the ICT sector, ranging from a lubricant that improves the energy efficiency of a production line to a sophisticated process reengineering consultancy service. Opportunities

cover | story for action in the Enabled Impact dimension tend to fall into one of three categories: 1. Efficiency improvement of an existing service 2. Substitution of a more energy-intensive service 3. Environmental services

Inform and Influence The outer ring of the Framework is the opportunity to inform and influence the actions of others for the purpose of reducing negative impact on the environment. Unlike actions taken in the other three categories, informing and influencing people cannot be quantified.

However, it is equally as important. A company’s efforts to inform and influence its stakeholders can help remove the hurdles companies sometimes face due to real or perceived limitations placed on them by shareholders and customers. The wrong actions in this area can also be the test of greenwash.

Inform and Influence can be considered with respect to all of a company’s stakeholder groups, including customers, employees, government and shareholders.

Informing the public is probably the most material opportunity media and communications companies have to impact climate change.

NewsCorp is one of the best examples of a media company taking a public stance on this. In addition to commitments to reduce their own carbon footprint, NewsCorp has made a public commitment to: “Engage our employees, our business partners and our audiences on the issues of energy use and climate change.”

Companies with a well recognized consumer brand name also have a significant opportunity to inform customers and sway public opinion by publicizing their own commitments and activities, providing tools, such as carbon calculators, and even providing marketing incentives for the public to take action.

• BT uses its brand in the UK to engage the general public through a range of tools, including calculators, games and competitions.

• Xerox provides a calculator that documents the impact of the services it provides, which allows customers to make a quick, Web-based assessment of how-to advice on smart ways to make offices greener.

• Nortel’s energy calculator is a more explicit demonstration of energy savings for competitive differentiation.

For the employee stakeholder, representative engagement efforts include grassroots programs, websites and competitions, among others. Walmart has a PRP (Personal Responsibilities Program) which includes encouraging employees to put forward ideas for improving sustainability in stores. BT runs a program called Carbon Clubs that engages groups of employees to tackle environmental issues in ways that are meaningful to them.

The most engaged companies are educating their people not only on the actions they can take in the workplace, but about those they can also take at home and in other aspects of their personal lives. At BT, staff are encouraged to take action outside of the workplace through a Living Lightly program. HP provides a subsidy and a program to encourage employees to install solar panels at home.

ICT Sector as an Enabler

T

here are many ways in which ICT services help reduce emissions, and they have the potential to do so much more in the

future. Travel substitution is one of the best known, i.e., replacing in-person meetings with teleconferences and enabling teleworking to avoid commuting. Other sophisticated travel reduction opportunitities include: • Installing wireless devices in vending machines to reduce required visits from stocking fleets • Using GPS to improve vehicle routing • Congestion control in cities to improve traffic flow • Using the Internet to provide real-time traffic advice to commuters Effective IT infrastructures have enabled companies to reduce real estate usage up to 30 percent by creating more flexible workspaces, which can serve more employees. Such ‘smart buildings’ can also save energy using a range of ICT services. For instance, electronic monitoring and control of a building’s environment can enhance the use of natural daylight and external climate.

Some systems can also automatically switch off the lights or close the windows.

The Internet and private networks have greatly reduced the quantity of paper used for commercial transactions such as billing and information provision. Smart Grid describes a concept through which user demand, power station supply and pricing are all connected on a more granular, real-time basis to allow great improvements in grid efficiency.

The potential benefits of these and many other examples can be quantified and compared to the carbon burden of the ICT industry (considered to be 2-3% of global emissions). In fact, the recent report from Climate Group and GeSi SMART 2020 concluded that a five-fold benefit could be realized by the industry as a whole by 2020.

Traditionally, most companies have focused their government interactions on activities that are deemed core to their immediate business. As climate change and other areas of sustainability become more top-of-mind, we are seeing that focus broaden. In the UK, for example, a group of prominent companies, including BP, BT, Ford and Barclays, formed a Climate Change Task Force under the auspices of the Confederation of British Industry to present the corporate perspective on climate change to government leaders. According to their report: “The best question for the business community is whether we can be certain that climate change presents a substantial risk; a risk that will have a profound impact on society and the economy? To this the answer is clearly ‘yes’. And so, as with all substantial risks, it is vital to mitigate the danger…. Any response to the threat of climate change requires three components for success. Politicians must give January-March 2013 | CSR Today | 19

cover | story much greater priority to the subject, and not just on an ad hoc basis.

Consumers have to be empowered to make the right decisions and need to be given the facts to make informed judgments. And business must become green to grow.”

This initiative represents a compelling example of the role of business in informing and influencing government in this area.

Informing shareholders is vital to ensure their understanding and support for key actions. For many companies that are active in

zations should be doing and contrast this with what they are doing in each space. The top priorities and gaps will become evident.

The Framework also serves as a tool for testing whether a company is truly consistent in its approach to sustainability. While action is not required in every category on a specific issue, inconsistent action across the categories of the Framework deserves careful attention. In most cases, a company should consider starting its activities in the Direct Impact dimension to gain knowledge and experience, and work outwards from there. Skipping action within a category may be appropriate because there is no impact in that space, but it may also indicate lack of commitment.

Also important is inconsistency between action in the outer ring of Inform and Influence and action in the three inner rings. Action in Inform and Influence that is intended to improve sales or brand, without equivalent level of action in the three inner categories effectively defines greenwash in the environmental sustainability arena.

Companies guilty of this form of misrepresentation present a green façade to their stakeholders, while operating in a manner that pays little or no heed to the actual impact of their actions. Likewise, taking positive action in the central ring(s) while continuing material negative actions in outer rings is counterproductive for the environment and should be called out by stakeholders.

This Framework is intended to provide a consistent model that allows for introspection within a company, comparison with companies within a sector and across sectors and critical analysis from external observers. In so doing it strives to add to the tools available to continually improve sustainability within the business world.

The Sustainability Framework identifies four discrete dimensions of a holistic approach to sustainability this area, this is accomplished through the annual sustainability report. The following statement from the 2008 sustainability report of Omron, a Japanese manufacturer of sensing devices and control systems, makes unequivocal the company’s position on a key sustainability issue and helps inform the views of the shareholder: “As reported by the Intergovernmental Panel on Climate Change (IPCC), the fight against global warming is considered to be one of society’s most urgent issues. Reflecting this belief…we are determined to promote anti-global warming measures as our most important management objective…”

Companies often state that they can take only as much action as their shareholders and customers will tolerate over and above what government legislation requires. But those same companies are able to inform and influence those stakeholders. In fact they are often expert at doing that through core competencies in marketing, employee communications, government relations and investor relations. Including action in the Inform and Influence category is a critical component of a comprehensive sustainability program.

Conclusion The Sustainability Framework identifies four discrete dimensions of a holistic approach to sustainability. As the examples illustrate, different industry sectors have different material impacts in each of the Framework dimensions. The biggest impact of a food and nutrition company is Direct emissions—and much of that might be due to supply chain. The auto industry, in contrast, has its biggest impact through Products in Use emissions. A telecommunications company like BT has the greatest impact through its positive impact on Enabled emissions and a media company like NewsCorp, in turn, through its ability to Inform and Influence the public.

Companies should be able to quantify their impact in each of the first three dimensions and map their activities against the materiality of that category. Such an analysis will help identify what organi20 | CSR Today | January-March 2013

ICT – Information Communications Technology. This terminology is employed to

1

reflect the increasing interdependence of the IT and telecommunications industries. Historically separate, both in terms of industry sectors and in terms of functional departments in a business, the increasing interdependence between IT and telecommunications is evident in the increasing overlap between the industry sectors and the merging of traditional IT and communications departments in many corporations. This interdependence is reflected in the use of the terminology ‘ICT’.

The most recent and probably most comprehensive is SMART 2020 produced by

2

GeSI and the Climate Group in June 2008.

About the Author Kevin Moss has responsibility for implementation of British Telecommunications’ Corporate Social Responsibility (CSR) strategy in North America. Kevin previously oversaw voice and data product management for BT Americas, including product strategy, new product development and geographic expansion across systems, networks, operations and channels. He maintains a blog with his views on CSR and an ongoing commentary on the Four Dimensions of Sustainability at www.csrperspective.com

cover story

Case Study:

Sustainingthe Ecosystem for Water,Wildlife and Community In 2011, Ambuja Cement achieved its target of becoming water positive. This approach has helped the company strengthen relationships with all local stakeholders, which has guaranteed its license to operate in the future

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mbuja Cement, a group company of Holcim, is a leading supplier of cement, aggregates and ready-mixed concrete in India. Ambuja employs approximately 4,500 people. The company operates the Ambujanagar cement plant in the Kodinar region of Gujarat, India. The facility has three closed and rehabilitated quarries and six active quarries. To ensure the future availability of the key raw material required for cement (limestone), the plant will be aiming to enhance capacity at some of its other active mines. The Ambujanagar facility is located between the Arabian Sea and the Gir Sanctuary and National Park, which together are a designated protected area.

The Gir National Park provides crucial habitat for the last surviving population of the Asiatic lion.

There have been critical problems of freshwater availability in the state of Gujarat since 1970. The area where the cement plant is located is in a Coastal Regulation Zone. Owing to over-withdrawal

of freshwater and intensive land-use in the Kodinar region, there has been marked depletion of the water table and an associated serious increase in water salinity from the ingression of seawater into the water table. The response Considering the ecological sensitivities of the region and needs of the surrounding communities, Ambuja undertook a holistic view of the situation while planning rehabilitation activities in consultation with local communities, natural resource management experts, non-governmental organizations and local authorities. Ambuja has also adopted a landscape approach in addressing impacts of the quarrying activities. The scope of the rehabilitation activities, has thus been widened to include areas outside the quarries and has focused on the following key issues: • Capturing and preserving freshwater: The Ambuja Cement Foundation, the corporate social responsibility wing of the company, has implemented several measures to improve water management in the area, primarily through rainwater harvestJanuary-March 2013 | CSR Today | 21

cover | story

•

•

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ing, and converting the mined-out pits into artifi cial lakes and wetlands. 165 dams and small barriers have been built to reduce the loss of water through shallow rivers and streams. Other water resource management measures include interlinking rivers and streams, construction of percolation wells, renovation and deepening of ponds and runoff diversion systems.

Quarry rehabilitation through tree planting: As a part of its restoration project, different tree species have been planted as part of the Van Vihar project, the Eco Park Project and the mini Gir project, in the mined-out areas and surrounding zone. Small patches of land are earmarked to grow medicinal plants and fodder-yielding plants. The company is also planning Jatropha plantations, which will serve as a source of bio-fuel in coming years.

Conserving the fl ora and fauna of Gir: Under the “Mini Gir project”, a large number of tree species native to the Gir Forest are being planted in the reclaimed mines. The company has also supported the conservation of the Asiatic lion (Panthera leo persica), an endangered species.

Protecting coastal zones through mangrove development: Since 2009, the company’s Ambujanagar cement plant and Surat limestone grinding unit have been working with the Gujarat Ecology Commission to develop a mangrove area near Surat. State authorities have given 150 hectares of land to the company for the development of mangrove along the Gujarat Coast through the planting of three native tree species.

Sustaining local livelihoods: Local people are employed in rehabilitation activities such as pit preparation, watering, tree planting, nursery development and construction of water harvesting structures. Simultaneously, to create awareness of medicinal plants, a medicinal herb garden managed by local people has also been developed nearby. Some former pits are reclaimed with fodder cultivation in partnership with local villages, in order to provide feed for cattle. The water management and mangrove plantation projects have also improved the livelihoods of local people by helping to increase agricultural crop yields and fi shing yields.

Figure 1: Salinity regression track, 2001-2009. Tracking by Ground Water and Mineral Investigation Consultancy Centre (GWMICC, Jaipur) 22 | CSR Today | January-March 2013

The business case

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mbuja Cement undertakes rehabilitation activities at all its sites, with the objective of mitigating the impacts from

the withdrawal of limestone and water from the area, both of which are required for cement manufacturing. The Ambujanagar plant in Gujarat, located between the Arabian Sea and the Gir Protected Area, restores its mines and surrounding areas to the degree that it has enhanced the region’s biodiversity and also helped to address water scarcity and salinity problems in the region. These outcomes have helped the company to strengthen relations with local stakeholders, including villagers and local authorities.

Results The water management program has raised the water table by eight meters, controlled the water salinity problem (Fig. 1) and made quality freshwater easily available to the communities.

Wells, previously dry for at least seven months a year, now contain water all year round, which has made it possible for local farmers to grow two to three crops per year. Other signifi cant results of the project include: • By March 2012 the company had rehabilitated approximately 330 hectares of area and planted nearly 275,000 trees. It had also completed some special projects, such as the Mini Gir project, where barren and degraded land near the Gir forest has been planted with native trees; • Local employment opportunities have been generated through all activities and initiatives with benefi ts for the livelihoods of local people; • Artifi cially created water reservoirs have enhanced the wildlife of the area, becoming breeding grounds and visiting spots for a large number of migratory birds; • The fi sh population has increased and Mugger crocodiles (Crocodylus palustris) have also been recorded; • A planting density of 3,000 plants per hectare has been maintained in the mangrove plantation project, which will provide multiple benefi ts, such as fl ood protection, supporting marine life and climate regulation.

In 2011, Ambuja Cement achieved its target of becoming water positive. This approach has helped the company strengthen relationships with all local stakeholders, which has guaranteed its license to operate in the future. The Government of Gujarat is exploring implementing similar water harvesting models elsewhere in the state on a large scale, with advice from the Ambuja Cement Foundation. This project has helped to demonstrate the importance of taking into account the needs of the local communities and how they may be affected by the state of the environment and its resources. © Ambuja Cement

corporate strategy

Measuring Shared Value Measuring shared value focuses on the concept of value creation and links social and business results

melissa scott consultant, fsg

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ou want your business to succeed…and you believe in the role of business in addressing India’s pressing social and environmental problems. You support the inclusive growth agenda. This is why you have invested significant resources into pursuing a shared value strategy – using business strategies to solve social problems while simultaneously bringing your company economic benefit.

Yet, sometimes you wonder: Are we actually creating shared value? You think you are, the strategy makes sense, but you cannot really demonstrate it. And you never have a convincing answer when that question comes from your CFO at the end of every reporting cycle.

This question is the single most important hurdle to more widespread adoption of shared value strategies. Only when there is a clear business case that shows how making progress against social objectives links to standard measures of business success, such as revenues, costs or market share, will companies – and investors – around the world realize the potential of shared value and contribute to developing sustainable and scalable solutions to the world’s toughest problems.

The answer to the question requires measurement. Measuring Shared Value: How to Unlock Value by Linking Social and Business Results, illustrates how leading companies – including Nestlé, IHG, Intel, Coca-Cola and many others – are measuring shared value, thereby unlocking new value.

Take Novo Nordisk, for example, that identified the high and growing burden

of diabetes in China as a core social issue closely linked to its business as a global leader in insulin medications. The company believed that helping to improve the health system and diabetes care in China would ultimately benefit the bottom line and started implementing a shared value strategy in the early 1990s. From the beginning, Novo has closely monitored progress against key shared value indicators, such as the number of physicians trained and patients educated, and tracked overall health impact, to continuously revise its strategy to focus on the most effective interventions. At the same time, it has followed progress against the expected business results, such as insulin sales and market share. This approach has proven highly successful: In the last two decades, the company has increased its market share from below 40% to 63% in the second largest insulin market in the world. Novo has successfully analyzed and learned from these results in order to apply a similar strategy in the Indian market.

Measuring shared value focuses on the concept of value creation, linking social and business results–making it different from most existing approaches to social and environmental performance measurement by companies. From our experience, widespread confusion exists among business executives about the role of the different approaches and thus on where to focus their measurement and reporting activities. By distinguishing the purpose of shared value measurement from tracking sustainability, compliance, reputation and long-term social, environmental, or economic development impact, we hope to increase clarity

and, in doing so, contribute to the global effort around ”integrated reporting.”

The report identifies the key steps in the shared value measurement methodology and explores how to: • Anchor measurement in strategy – shared value measurement leads with a business case, and states the intended business and social impacts • Unlock value from shared value measurement – by understanding the interdependency between social and business results, companies can discover opportunities for innovation, growth, and social impact at scale • Distinguish the purpose of shared value measurement from established CSR/sustainability and social impact measurement approaches – shared value measurement goes beyond the fragmented reporting of financial social and environmental results, to link social progress to business success • Deliver new insights to investors from shared value measurement – a clear economic scenario for the business case in solving social problems removes investor skepticism • Apply pragmatic approaches for tackling shared value measurement execution challenges – grounded in strategy, shared measurement prioritizes those measures that will drive future strategy and innovation As companies progress with shared value measurement, we anticipate further insights to be shared, for example through FSG’s Shared Value Initiative, among other forums.

January-March 2013 | CSR Today | 23

csr communication

How to Benefit from Authentic CSR? Communicate Authentically!

Companies have an opportunity to influence consumer perceptions if they are able to communicate their social responsibility efforts more effectively

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onsumers prefer socially responsible companies and want to buy their products. However, far too many companies’ good intentions are lost in today’s marketplace because those corporations fail to communicate their good works to their stakeholders, including customers, shareholders and suppliers.

That’s one of the conclusions from the recent Corporate Social Responsibility Perceptions Survey conducted by BursonMarsteller, Penn Schoen Berland and Landor Associates. The survey showcased compelling evidence that good corporate citizens increasingly have the upper hand with consumers, as long as they communicate their social responsibility. However, many companies that are authentically practicing CSR are not leveraging those actions very well, resulting in consumer confusion and lost opportunities to win share of hearts and pocketbooks. Specifically, the survey found: “Companies have an opportunity to influence consumer perceptions if they are able to communicate their social respon-

24 | CSR Today | January-March 2013

csr | communication sibility efforts more effectively. Just 13% of consumers report having read about a company’s social responsibility agenda on its website – but 75% of those who have done so indicated that it made them more likely to purchase products or services from that company.”

Burson-Marsteller managing director for corporate responsibility, Eric Biel, reported that companies need to combine a strong social responsibility program with an effective communications strategy.

“While many consumers may not be precise in how they define terms like ‘corporate social responsibility,’ they do have a clear sense of how they expect companies to behave. They expect companies to offer high-quality products at good prices and to explain how they treat their employees well, give back to their communities, and respect the environment,” added Biel.

“Those companies that can clearly articulate how they advance these values to consumers can achieve real benefits for their brands and their overall reputation.”1 Many consumers may not be able to specifically define CSR, so it behooves a company to help educate customers as part of a marketing communication strategy. The education about the nature and advantages of CSR is best begun internally via corporate communications in order to create support for ongoing and extended practices, including that need for customer awareness.

So, what exactly IS “CSR”?

Companies must determine their own standards for acting in a socially responsible way, or as a “good corporate citizen,” by adhering to not only the financial bottom line, but a “triple bottom line” with concern for people, planet and profits. In addition, they must also take responsibility for helping consumers understand the meaning of corporate social responsibility.

Since many organizations focus their efforts on the increasingly prolific area of environmental or green issues and work primarily toward “sustainability,” consumers are increasingly aware of environmental or “green” issues and are learning to commit to purchasing from companies who

are showing consideration for finite natural resources, such as forests, or the currently top-of-mind issues of oceans and oil. However, selecting to print collateral on postconsumer waste paper, mandating strict recycling practices in their businesses and demonstrating greater environmental conscientiousness – such as reduced emissions and water conservation – are just a part of CSR. Consumers also need to understand that sustainable corporate thinking and actions can also be applied to human resources by engaging in fair trade and promoting worker safety and diversity.

value, most consumers will more often select the brand associated with a cause, so communicating those alliances and contributions is still beneficial – both to the brand and the charity.

“The [Corporate Social Responsibility Perceptions] survey found that 70% of consumers are willing to pay a premium for products from socially responsible companies. In fact, 28% are willing to pay at least $10 more.”1 Now, however, consumers are looking deeper than just reviewing a company’s charitable contributions. Using social me-

70% of consumers are willing to pay a premium for products from socially responsible companies. In fact, 28% are willing to pay at least $10 more Companies whose brands incorporate broad sustainability and who communicate alignment with social responsibility are attracting more and better-qualified employees: “…nearly 50% of 18-24 and 25-34 year olds are more likely to take a pay cut to work for a socially responsible company— a much higher percentage than any other age group. However… in a year where there seems have been so much responsibility expressed, especially in light of the earthquake in Haiti, only 11% of Americans say they’ve heard corporate CSR communications.”1

Why – What’s in It for the Company…and the Consumer Cause-related marketing was the buzz phrase of the ‘80s and ‘90s, and provided a platform for companies to tout their philanthropic side. Programs such as McDonald’s Ronald McDonald House or Whirlpool’s partnership with Habitat for Humanity helped align those companies with specific causes. Given equal price and

dia and Web searches, individuals can both explore the realities behind the brand’s messages and share their opinions with other consumers about what they perceive to be the true nature of a specific company.

The most conscientious consumers have been given many labels by research companies – “Deep Greens” or “Enlighteneds” – and play a key role in the marketplace both with their purchasing power and their power to influence others through wordof-mouth, and now, thanks to social media, “digital word-of-mouth.”

The Natural Marketing Institute’s name for this top percentage of the population who pursue a Lifestyle of Health and Sustainability is the “LOHAS” consumer. This market segment is focused on health and fitness, the environment, personal development, sustainable living and social justice, and is estimated to make $209 billion in purchases in this space annually.2 But in addition to appealing to the power of the purse, companies practicing CSR stand to gain in many other proven ways.

In her book, SuperCorp – How Vanguard Companies Create Innovation, ProfJanuary-March 2013 | CSR Today | 25

csr | communication its, Growth and Social Good, Rosabeth Moss Kantor says, “Corporate social innovation and entrepreneurship combined with corporate diplomacy [represent] a shift from ‘spare change’ to ‘real change’.”

“Values and principles, which includes respect for people and concern for the environment, contribute to numerous capabilities: sensing opportunities and innovating; enhancing customer success and value for end users; making effective acquisitions; attracting and motivating top talent; working collaboratively to react or change quickly; and tapping the potential of an extended family of business partners for new ideas or market reach. These companies attempt to raise social and environmental standards in the countries in which they operate and also within their own workplaces, which tend to be flexible and family-friendly as well as increasingly diverse and greenoriented. Overall, they derive benefits in both innovation and execution.”3 The “vanguard companies” profiled in her book, which range from P&G to IBM, Publicis to Diageo, may not be perfect, but their pro-social stances and actions have helped them weather – and in fact sail through – many storms for the greater good of their companies and the world itself.

One example showcased by Moff Kantor is how P&G dedicated 10 years of R&D to the creation of a water purification product, only to find out that its commercial prospects ultimately seemed unpromising. However, given that the effort felt consistent with the company’s goals at that time, the team that worked on the project was driven to persevere. As a result, when the 2004 tsunami and earthquake struck Asia, P&G was able to deliver nearly one billion glasses of drinking water for the victims, earning praise from NGO partners, the media, governments, as well as the employees themselves.

The Legal Rewards Some companies implement a CSR program simply as “avoidance behavior” – the avoidance of litigation, regulation and even prosecution. As described in Michael Levine’s 2008 article, “The Benefits of Cor26 | CSR Today | January-March 2013

porate Social Responsibility” on law.com, some companies without CSR programs have faced certain risks. “Such risks include: lawsuits under the Alien Tort Claims Act, and related class action litigation; governmental investigation by federal and state labor departments; project finance/investment contract issues; and the receipt of shareholder resolutions on labor, human rights, supply chain and sustainability issues, among others.”

The Financial Rewards The power of the consumer purse or the arm of the law aside, there’s a correlation between CSR and financial performance established via such metrics as the Dow Jones Sustainability Index and others.

From its inception in February 2005, the Global 100 Most Sustainable Corporations has achieved a total return of 23.67%, outperforming its benchmark (the MSCI All Country World Index) by 334 basis points per annum to January 25th, 2010.

Many groups work to measure a company’s corporate governance and sustainability efforts as a way to support investors and public interest, such as the WME (World’s Most Ethical Companies) list. Ethisphere says they take into account seven factors for rating a company’s ethical stature:

5. Innovation 6. Corporate Governance 7. Industry Leadership The Global Reporting Initiative (GRI)4 – the most widely used sustainability reporting framework – enables companies to measure and report their economic, environmental and social performance.

It provides a means for companies to be transparent and share benchmarking information to help support a common goal of improvement and sustainability among all companies worldwide. The GRI also provides investors with factual data so that they can make proper decisions.

“Many organizations find that financial reporting alone no longer satisfies the needs of shareholders, customers, communities and other stakeholders for information about overall organizational performance.

The term ‘sustainability reporting’ is synonymous with citizenship reporting, social reporting, triplebottom-line reporting and other terms that encompass the economic, environmental and social aspects of an organization’s performance.

What are the benefits of reporting?

For reporting organizations, the GRI Reporting Framework provides tools for: management, increased comparability

Values and principles, which includes respect for people and concern for the environment, contribute to numerous capabilities: sensing opportunities and innovating; enhancing customer success and value for end users 1. Integrity Track Record & Reputation 2. Corporate Citizenship & Responsibility 3. Internal System & Ethics/Compliance Program 4. Executive Leadership & Tone from the Top

and reduced costs of sustainability, brand and reputation enhancement, differentiation in the marketplace, protection from brand erosion resulting from the actions of suppliers or competitors, networking and communications.

csr | communication For report users, the GRI Reporting Framework is a useful benchmarking tool, corporate governance tool and an avenue for long-term dialogue with reporting organizations.”4 The GRI is a valuable tool for investors, stakeholders and financial analysts and certainly can make an impact on those consumers who read the reports. In a reader survey: “Ninety percent of readers said their views of a company had been influenced by reading its sustainability report. Of these, 85 percent reported a more positive perception of the organization.”5 Even the principles established for signatories of PRI (Principles of Responsible Investing) – an advisory group on responsible investing that was spawned from a thinktank coordinated by the United Nations Environment Programme Finance Initiative (UNEP FI) and the UN Global Compact includes reporting as a criteria5: Principle six of the PRI asks each signatory to ‘report on their activities and progress towards implementing the Principles’…

6. We will each report on our activities and progress towards implementing the Principles.

Possible actions [include]:…

• Communicate with beneficiaries about ESG issues and the Principles • Report on progress and/or achievements relating to the Principles using a ‘Comply or Explain’ approach1 • Make use of reporting to raise awareness among a broader group of stakeholders And, the 2009 CRD Analytics white paper on indexing sustainable investing describes a surge in reporting: “According to an in-depth research report conducted by KPMG, the number of large multinational companies reporting corporate responsibility (CR) data has risen dramatically over the last three years. …

There seems to be an increased awareness that enterprises at all levels will need to elevate the quality of their ESG measurement, validation and reporting mechanisms. The number of top tier management consulting and accounting firms, such as KPMG,

PwC, IBM, Deloitte and McKinsey staking their claim in the Corporate Responsibility and Sustainability business helps validate the market maturity.”

However, reporting alone is not enough to ensure that all stakeholders are well informed. It’s clear from the GRI survey of its own readers that communicating good corporate citizenship should go beyond filing reports: “… Over 450 respondents [to the GRI reader survey] indicated that they do not currently use sustainability reports. They feel they have more direct means to communicate with companies to meet their information needs and that reports are too lengthy or not valuable to them.

A majority of those who typically don’t read reports said instead they ‘use public media as a key information source for any issue relevant to the companies [they] follow.’”6 Or, many rely on having “direct contact with the company” or “discussions with other parties engaged with the company (such as employees, suppliers, etc.).”7 This means to help “raise the bar” higher, and to influence conscious choices while educating employees and investors, messaging must include increased and targeted corporate and marketing communications beyond annual or quarterly reports.

AT Kearney’s Green Winners report (2/09) cites a major media company that embedded ESG principles from the UN Global Compact “into daily business practices and applied to supplier codes of conduct, company policies and compliance procedures…among other areas.

The company issues an annual corporate responsibility report and widely shares its code of ethics and business conduct…

The company has reduced its carbon emissions by 13% since 2003 while scoring in the top quartile for corporate governance practices on the Goldman Sachs Sustain List.”

“Most companies do not target their CSR communications at specific audiences. The result is their CSR activities have minimal influence on their corporate brand or on consumer

purchasing behavior.” – United Nations Environment Program For green brands in particular, Annie Longsworth, sustainability practice leader for Cohn & Wolfe says: “As consumer demand for information and knowledge on green increases, brands also need to become more sophisticated about how they communicate their company and products. Transparency is critical, as are credible spokespeople and authenticity, which can be demonstrated through product labeling and ingredient disclosure, among other strategies.”

So what is a corporation supposed to do to ensure their CSR activities are influencing their brand or consumer purchasing?

Even a company like Seventh Generation, known for its recycled paper products, for which social responsibility has been built in from the ground up, must continue to “walk the walk.” “…The stand these companies take on a social issue is not a result of their business, but one of the reasons (if not the reason) they are in business.” – Rachel Simmons, “Social Brand Capital: The Loyalty Nucleus of Corporate Social Responsibility” ZipCar, the innovative car-sharing service, has dedicated itself from the onset to efficiency and environmentalism and provides an excellent example of living its mission. The firm aims to “enable simple and responsible urban living” and apply that to its business strategy and corporate governance as well. Its business plan of blanketing a city or a campus with a concentration of cars usually means an easy walk to pick up a rental, reducing the need for shuttle buses or taxis to a rental car office, for example, which reduces emissions and fuel usage.

The firm sees its service as complementary, not competitive, to public transportation and provides clear, factual information on environmental and cost benefits.

“90% of our members drove 5,500 miles or less per year. That adds up to more than 32 million gallons of crude oil left in the ground – or 219 gallons saved per Zipster.” (http://www.zipcar.com/is-it/greenbenefits)

ZipCar takes its mission further than the business plan, though. The management January-March 2013 | CSR Today | 27

csr | communication strives to embody social responsibility and find ways of making positive changes in communities and society. That may mean donating a ZipCar to a local family facing devastating property loss, contributing to local food drives, or building employee/ client teams of bike riders 25 people strong, from the CEO down, to ride for causes like cancer research.

Chief Marketing Officer Rob Weisberg explains: “It’s just part of what we do. We try to live those ideals of enabling and encouraging simple responsibility so the brand speaks for itself. We do good things, and that attracts like-minded people. It’s why we even describe our members (‘Zipsters’) as ‘people who want transportation solutions that are good for the planet and easy on the wallet.’ We don’t blow our own horn as much as explain really clearly right on our Web site how carsharing is more responsible, and then we all try to act responsibly ourselves, personally and professionally.”

But what about a conventional brand that is working to make its good practices known? In our digital society, it’s best to be proactive by making slow, steady continuous strides in establishing a company’s social conscience and actions. It is part of building a trusted brand and thus essential that CSR communications not be windowdressing, but instead factual, authentic information about activities that stem from the brand’s genuine mission.

For example, PUMA, the sporting goods company best known for its footwear and athletic apparel, recently issued a news release about its next big step in an ongoing commitment to corporate social responsibility.

“For a long time our mission has been to become the most desirable Sportlifestyle company. With this next phase of our sustainability program, we have evolved our mission to be the most desirable and sustainable Sportlifestyle company in the world,” said Jochen Zeitz, Chairman and CEO of PUMA. “Through PUMAVision and our puma.safe program, we have already started to reduce our carbon emis28 | CSR Today | January-March 2013

sions, curtail wasteful transportation, recycle and reuse available materials, use water sparingly and become paperless.”

While the average consumer might not immediately associate PUMA with sustainability, the news release will certainly increase awareness of this 10-year effort.

The key, as mentioned, is authenticity and factual backup, and the release provides detailed information that should stand up to the scrutiny of a conscious consumer and educate others at the same time: “PUMA’s longstanding work and efforts to improve social, labour and environmental standards throughout its operations date back to 1999…and realized several successful large-scale initiatives such as sourcing of raw materials through the Cotton made in Africa campaign to … the opening of the industry’s first carbon neutral head office. …The next milestone in PUMA’s mission to be the most desirable and sustainable Sportlifestyle company in the world is the introduction of an innovative packaging and distribution system for PUMA products that will reduce the paper used for shoeboxes by 65% and carbon emissions by 10 tons per year…” 8

In Summary Due to a climate of more vocal, socially conscious consumers, brands that can authentically make CSR claims and revise their branding to include that messaging stand to benefit, as long as they continue to educate and inform consumers of the specific advantages.

There are, of course, best practices for managing press and consumer perception, and different rules apply based on each media platform. For example, tapping social media channels requires a conversational style and offers an opportunity to “humanize” the people who make up the brand.

Working to create genuine relationships with a more personal style is paramount in building trust when commenting on or contributing to blogs, or engaging on social networks like Facebook and Twitter.

One need only look at the recent Facebook

scuffle between Nestle and Greenpeace to see how essential transparency and authenticity are in one’s communications (http:// blogs.bnet.com/businesstips/?p=6786).

Providing valued, informative content remains vital as the complement to any outreach, now that consumers have greater access to research and information on the products and services they buy.

By creating a consensus and understanding among internal stakeholders – HR, PR, legal, finance and marketing – of the value and approach to promoting a company’s socially responsible activities, each department, as well as the organization, can benefit. From attracting better employees and more investors, to withstanding legal assaults and accusations, generating increased sales and building a better brand image, corporate social responsibility should be embraced throughout the organization and wellpresented to all its stakeholders on a consistent basis.

References 1 Corporate Social Responsibility Perceptions Survey, conducted by research-based consultancy Penn Schoen Berland in partnership with brand consulting firm Landor Associates and strategic communications firm BursonMarsteller, released March 2010. A slide summary of charts from this survey is available at: http://www.slideshare.net/BMGlobalNews/ csr-branding-survey-2010-final 2 http://www.lohas.com/about.html See also: http://www.nmisolutions.com/r_lohas.html 3 SuperCorp – How Vanguard Companies Create Innovation, Profits, Growth and Social Good, Rosabeth Moss Kantor © 2009 Crown Business 4 http://www.globalreporting.org/Home 5 http://www.unpri.org/principles/ 6 “Count Me In” Readers’ take on Sustainability Reporting, 2008 7 Global Reporting Initiative Readers’ Survey http://www.globalreporting.org/CurrentPriorities/GlobalReadersSurvey/NRQ4.htm 8 See http://www.prnewswire.com/news-releases/pumas-new-packaging-and-distributionsystem-to-save-morethan-60-of-paper-andwater-annually-90729789.html for complete details in the PUMA release on PRNewswire © PR Newswire

esg investment

The Next Step for ESG Investing: Moving from What and Why to How ESG is based on assessing the financial risk of ESG factors and strives to evaluate the way in which companies address and mitigate their ESG risk factors by daniel t. allen

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he implementation of Environmental, Social and Governance (ESG) factors has evolved to a point where it may be possible to begin to develop standardized principles and methodologies that quantify ESG results. These results are the manifestations of efforts by companies to improve performance long term by becoming increasingly sustainable. This development would represent the critical “how” component of the process.

To date, a great deal has been made of “what” needs to be done and “why” it needs to be done but the difficulty of addressing how to quantify ESG criteria has largely been ignored. The United Nations Principles for Responsible Investing1 has become perhaps the most visible framework intended to describe the general recognition that ESG factors represent risk factors that must be adequately addressed and provide an overarching framework to address what needs to be done. As evidence of the importance that the market places on ESG. January-March 2013 | CSR Today | 29

esg investment ESG Overview Globally, there has been an accelerating public consciousness that simply using traditional financial metrics are not adequate investment criterion and institutions and individuals have become increasingly interested in the behavior and values that are manifested by business entities. According to BSR, “The global financial crisis of late 2008 has led to intense scrutiny of the foundational beliefs and basic structures that underpin current global markets and investment models.”2 This trend is confirmed through the broad calls for greater disclosure and accountability, and the market’s growing recognition that there is a significant demand for ESG products and services. The demand is particularly high in Europe, but growing rapidly in the United States.

ESG Investing has been primarily the provenance of institutional investors where ESG criteria are often considered a metric to illustrate quality management and a commitment to long-term sustainability.

Socially Responsible Investing (SRI) is a subset of ESG investing that is typically re-

Assets Under Management (“AUM“) was managed in the United States using some aspect of ESG/SRI principles. Of that less than $200 Billion was mutual funds, closed end funds and ETFs and less than $3 Billion in separately managed accounts.3 The remainder was in institutional accounts.

Institutional investors tend to take a longer term view of investing and are interested in the sustainability of companies. Effectively dealing with ESG issues is fundamental to a company being sustainable. The classic definition of sustainability as, “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”4 is accurate but may be insufficient as it does not clearly address the financial or economical imperative of a business’s operation. George P. Nassos, Director - Environmental Management and Sustainability Program & Center for Sustainable Enterprise at IIT Stuart Graduate School of Business summarizes it like this, “For long-term investors, it is imperative to look for companies that are truly sustainable – environmentally, socially

The United Nations Principles for Responsible Investing has become perhaps the most visible framework intended to describe the general recognition that ESG factors represent risk factors that must be adequately addressed and provide an overarching framework to address what needs to be done tail oriented and takes a narrower, more exclusionary approach focused on the “rights and wrongs” of various actions.

This institutional orientation is borne out through examination of ESG/SRI invested assets. According to the Social Investment Forum, in 2007, $2.7 trillion in 30 | CSR Today | January-March 2013

and economically… these companies will provide the best long term return for their shareholders and, at the same time, will be able to sustain their competitive position.”

It is the marriage of strong ESG fundamentals with strong financial fundamentals that truly makes a company sustainable.

Background of ESG The roots of ESG Investing can be traced back to early efforts at Socially Responsible Investing (SRI) started by religious organizations such as the Quakers which established restrictions on investing. In the early to mid-1700s, Quaker church members were prohibited from participating or investing in the slave trade or providing any support for the ability to wage war. John Wesley (1703-1791), founder of the Methodist Church, preached in his famous Sermon 50, “The Use of Money,” that we must be moral in all dealings with money so that we might “gain all we can without hurting our neighbour.”5 Wesley recognized that there was a component to an investment’s value that went beyond the financial metrics. He defined it in moralistic terms.Throughout the 1800s and early 1900s, religious investors were encouraged to avoid what was considered to be “sinful” investments in guns, liquor, and tobacco. This continued to be the main thrust until the 1960s when, during the Civil Rights Movement, Dr. Martin Luther King, Jr. in his August 1967 sermon, Where do we go from here?, began to call for the use of economic power as a means to create pressure for social change.6 The idea expanded into the antiwar movement of the day, and investors who opposed the Vietnam War began to avoid investing in companies that were supporting the war effort.

In 1971, PAX World launched the PAX World Fund (now called the PAX World Balanced Fund) which is widely regarded as the first publicly available SRI mutual fund.

The fund primarily screened out companies profiting from war efforts. Throughout the 1970s and 1980s, investor avoidance of South Africa is believed to have reduced international investments in South Africa by as much as 75% and added to the political pressure that eventually forced that system to change. Through this period funds were also created to advance such causes as women’s rights, labor equity and the environment and a growing acceptance of what we now call ESG became routinely included as a consideration in public pension funds.

esg | investment Current Status of ESG In the last three years according to the UNPRI, “the number of signatories to the Principles for Responsible Investment has soared from 50 to 500, representing US$18 trillion of assets and 36 countries.”7 This represents an enormous growth of interest in the subject and is an indication that ESG Investing is no longer a niche approach but now represents a fundamental shift in the way asset managers view investing. This

The question of “why” we should consider ESG issues has been widely debated and discussed. War, apartheid, sweat shops and their social and political consequences have made it clear that social issues have financial consequences. The Exxon Valdez incident, superfund sites and the climate change10 debate makes it clear that environmental issues have financial consequences. Enron, Global Crossing, WorldCom, Lehman Brothers, AIG, Citi have all

Investors and financial managers need a variety of tools to measure the financial premium of those risks, their impact on long term Cost of Capital, and on a company’s likelihood for lasting sustainability growth accelerated last year during the financial crisis. The crisis ”catalyzed additional investor interest in responsible investment, with 160 new signatories – holding assets of over US$5 trillion– signing up to the PRI between October 2008 and May 2009.”8 Unlike the original SRI movement which is primarily values driven and is sometimes criticized for being based on non-financial criteria, ESG is based on assessing the financial risk of ESG factors and strives to evaluate the way in which companies address and mitigate their ESG risk factors. Michael Muyot of CRD Analytics describes it this way, “As companies look to raise profitability and enhance long‐term shareholder value by focusing increasing attention on transparency and environmental, social and corporate governance (ESG) matters, they simultaneously boost their appeal to the expanding sustainability investor community.”9 In other words, the risk-based approach of ESG provides the opportunity to take a quantitative approach to evaluating ESG factors with an eye to improving the investment selection process in a meaningful financial way.

brought awareness of the financial importance of corporate governance.

The impact on markets and the investors who have been hurt or helped by the good or bad application of these issues makes it clear “who” should be interested. In fact, according to the CFA Institute “There is an increasing recognition of the need to include the analysis of ESG factors”11 in order to fulfill the duty of financial professionals to act in the best interests of clients.

The UNPRI and other initiatives have worked to address “what” should be considered. Conferences have been held throughout the world to discuss environmental, social and governance concerns and identify what should be included as an evaluated criterion.

The open question still being broadly struggled with is “how” ESG issues can and should be best incorporated into the investment process. SRI takes a values based approach but the approach is controversial, binary in that each issue is typically applied as a yes or no criterion and is highly subjective based solely on the particular values used.

For ESG Investing to truly become a com-

ponent of mainstream investing, thoughtful financial metrics need to be developed that provide investment managers the tools that they require for quantifying the financial impact of a company’s ability to manage ESG risks. Investors and financial managers need a variety of tools to measure the financial premium of those risks, their impact on long term Cost of Capital, and on a company’s likelihood for lasting sustainability.

Recommendation to the Community The issue of “how” cannot be resolved by any one group and will require the combined efforts of academic institutions, asset management firms, institutional investors and others but it is an issue that is clearly timely. I recommend that an effort be made to bring thought leaders on the various aspects of ESG Investing together with the purpose of addressing the fundamental question of how ESG criterion may best be quantitatively applied into the investing process.

(UNEP FI, 2006)

1

(Laura Gitman, 2009)

2

(SIF, 2007)

3

(Brundtland, 1987)

4

(Wesley, 1872)

5

(Clayborne Carson, 2001)

6

(UNEP FI, 2009)

7

(UNEP FI, 2009)

8

(Muyot, 2009)

9

(GS Sustain Research, 2009)

10

(CFA Institute: Centre for Financial Market Integrity, 2008)

11

About the Author Daniel T. Allen is the Director - Business Development for Ativo Capital Management LLC, an SECregistered investment advisor. Mr. Allen is a graduate of the J. Mack Robinson College of Business, Georgia State University and is a former U.S. Military officer. He has been quoted in national publications such as USA Today, frequently writes about Environmental, Social and Governance (ESG) Investing and is a public speaker on the topic. He is the group leader of the LinkedIn group, ESG Investing, one of the largest international professional groups of its kind. His security licenses include the Series 7 and Series 66.

January-March 2013 | CSR Today | 31

case study BHP Billiton

Linking ESG Metrics to Executive Pay Companies should link appropriate ESG metrics to reward systems in a way that they form a meaningful component of the overall remuneration framework

B

HP Billiton is a diversified natural resources company that produces or extracts petroleum, aluminum, base metals (including uranium), diamonds and specialty products, stainless steel materials, iron ore, manganese, metallurgical coal and energy coal. Given the potential ESG-related risks faced by the company, BHP Billiton has embedded sustainability within its entire organization, with particular reference to health, safety & the environment.

The company has been progressively evolving its practice of integrating ESG metrics in its remuneration packages, as evidenced by its remuneration report disclosure. While BHP Billiton has used safety (measured predominantly by injury frequency rates) as a driver of executive remuneration for many years, over the past two years BHP Billiton has established a balanced scorecard approach to ESG metrics as a basis for executive remuneration.

The oversight functions of both the sustainability committee and the remuneration committee of the board are utilized in

32 | CSR Today | January-March 2013

Case Study | BHP Billiton order to assess and reward executives on their ESG performance.

While some companies need encouragement to incorporate ESG factors into their remuneration structure, BHP Billiton has embraced the incorporation of these factors into its remuneration packages. This is due to the fact that BHP Billiton believes that ESG issues are integral to the mining sector, and as such, the company understands that ignoring ESG issues could ultimately result in the loss of its license to operate in particular areas of the world.BHPBillitonrecognizesthatanydiminution in or loss of its license to operate will negatively impact its ability to execute its strategy of creating long-term shareholder value through the discovery, acquisition, development and marketing of natural resources.

Due to the potential impact of ESG factors on the company’s operations, BHP has embraced the incorporation of ESG metrics into its remuneration packages.

The company has seen an overall progression in its incorporation of these metrics and it has put in place a structure whereby the sustainability committee of the board receives a detailed paper on the Health, Safety, Environment and Community performance of the company. Based on this paper, and after reaching a view of what entails appropriate outcomes, the sustainability committee advises the remuneration committee on its assessment.

The remuneration committee typically pays close attention to the sustainability committee’s assessment of the company’s performance, and a focus on the growing relationship between these two committees has been a key part of BHP Billiton’s evolution in improving its governance and its metrics setting processes.

Currently, 15 per cent of executives’ short-term incentives are based on a balanced scorecard of ESG measures. At present, BHP Billiton’s long- term incentive plan is based on total shareholder returns, and ESG metrics are not explicitly included. The company currently takes this approach as it believes ESG performance has the potential to have a significant im-

Due to the potential impact of ESG factors on the company’s operations, BHP has embraced the incorporation of ESG metrics into its remuneration packages pact on overall financial performance in both the short and long-term. Poor ESG performance will therefore be reflected in total shareholder return, thereby influencing the vested outcomes of the long-term incentive plan.

However, BHP Billiton’s remuneration structure has recently undergone significant changes. For example, in 2009 and 2010 ESG metrics were primarily focused on total recordable injury frequency; however, since 2011 the company has adopted a balanced scorecard approach for its ESG metrics which were broadened to include fatalities, significant environmental incidents, HSE risk management, human rights impact assessment, and environment and occupational health. The remuneration committee also has the discretion to award zero pay-outs in the case of extreme events, regardless of the outcomes of its formulaic measures. The company has seen continued progress over time in its sustainability initiatives and states that linking ESG issues to remuneration has had a significant financial impact on employees whose compensation is most closely linked with ESG measures, driving better ESG performance. This has coincid-

ed with BHP Billiton’s broader initiative of minimizing operational risk.

Key Takeaways: • There are clear lines of oversight at BHP Billiton and the sustainability and remuneration committees of the board work in conjunction to establish and verify appropriate ESG metrics to be used for the purposes of executive remuneration; • The collective efforts between the sustainability and remuneration committees of the board has assisted BHP Billiton in establishing more robust governance practices; • BHP Billiton uses a balanced scorecard approach to ensure that both ESG and financial goals are achieved within the organization; • The board retains discretion in awarding remuneration based on ESG metrics and can reduce payout levels based on underperformance or certain qualifying events, despite their formulaic approach to determining awards; and • BHP Billiton associates higher levels of performance related to sustainability initiatives due to properly incentivizing executives on ESG metrics. © UNPRI January-March 2013 | CSR Today | 33

ethics supply chain

Ethical Sourcing @ Walmart Audit Process Walmart implemented an industry best practice to conduct validation audits that check the accuracy of third-party audits

F

actory audits are a central pillar of Walmart’s ethical sourcing program. Because Walmart does not own any of the factories that produce merchandise for our stores, regular audits are conducted to verify that a supplier is complying with Walmart’s Standards for Suppliers and to find ways to strengthen working conditions and labor practices in factories. In 2011, more than 9,737 audits on 8,713 factories were conducted to verify if suppliers were adhering to Walmart’s Standards for Suppliers.

When auditors visit a factory, the audit process enables them to determine if:

• Workers are treated with dignity and respect; • Workers are paid appropriately and receive the legally and contractually defined benefits; • Working hours comply with the law and Walmart’s standards; • Well-defined hiring practices are followed, which include age verification 34 | CSR Today | January-March 2013

ethics | supply chain • Red: most serious violations that warrant no future business with Walmart.

Walmart uses the audits to help make decisions about suppliers and factories – whether to develop them, make them a preferred supplier or to stop doing business with them due to the severity of violations.

and confirmation of the individual’s eligibility to work in the country; • The working environment is clean, safe and well-maintained; and • Open and safe communication between workers and management is established.

Walmart Audits Factory prequalification is required for factories of suppliers managed by Walmart Global Sourcing or Direct Sourcing Group where Walmart is the importer of record. To be approved, a factory must receive one of Walmart’s two highest assessment ratings. Subcontracting factories must also be audited if they produce part or a component of a product, containing a Walmart private label or proprietary brand logo, including, but not limited to, a major component of a finished product that could be sold independently.

After a factory is approved to produce merchandise for Walmart, all subsequent audits are unannounced.

The audit process includes:

1. Opening meeting – Auditors verify the factory’s business license and follow up with factory representatives on any noncompliance violations identified during previous audits 2. Factory tour – Auditors conduct a factory walk-through and speak with employees on the production floor about the factory’s compliance with Walmart’s Standards for Suppliers. Auditors also check equipment and safety mechanisms and inspect for any health, safety and environmental hazards.

3. Employee interviews – Auditors interview a representative sampling of workers (based on the size of the workforce) in a private area without management present. The selection of workers is representative of factors such as gender, nationalities, age and skill ratios at the factory.

4. Documentation review – Auditors review personnel documents and records to check workers’ ages, contracts, compensation and working hours.

Integrity of Audits All audits are conducted by approved third-party audit firms. Walmart only contracts with accredited and internationally recognized auditing firms. Approved audit firms will be required to complete

Factory prequalification is required for factories of suppliers managed by Walmart Global Sourcing or Direct Sourcing Group where Walmart is the importer of record 5. Closing meeting and signing of the onsite report – During the closing meeting, the auditor will discuss any identified issues and recommendations to remedy any violations observed and present the factory with an onsite report containing this information for their acknowledgment and signing.

Once a factory is audited, the findings are reviewed and a rating is assigned by the Walmart Ethical Sourcing Assessment Team.

There are four types of assessment ratings:

• Green: minor to no violations; the factory will be audited within 2 years.

• Yellow: medium-risk violations; the factory will be re-audited within 1 year.

• Orange: higher-risk violations; the factory will be re-audited within 6 months; if factories receive three orange ratings in a two-year period, the factory is disapproved and prohibited from doing business with Walmart for at least one year.

the equivalence process for the Auditing Competence portion of the Global Social Compliance Program.

All auditors must be approved and registered with Walmart. Auditors must have an understanding of local laws, requirements and collective bargaining agreements prior to the audit. Local language skills, gender and relevant audit experience in that particular industry are considered when assigning audit teams.

Walmart takes steps to ensure that all factory audits are conducted with integrity. Walmart implemented an industry best practice to conduct validation audits that check the accuracy of third-party audits. These re-audits are conducted by the Walmart Ethical Sourcing Special Audit Team. Validation audits occur within 30 days of the last audit, and they follow the same protocol including choosing the same workers to interview, reviewing the same set of records, etc. Validation audits are conducted at random or if Walmart has concerns about a particular audit. © Walmart January-March 2013 | CSR Today | 35

Sustainability Investment

Sustainability: Generating a Return on Investment Innovative organizations that understand the value of CSR work to create a corporate culture in which each employee is committed to doing his or her part to improve the environment by john garrett

O

rganizations of all sizes are rapidly discovering that corporate social responsibility (CSR) and sustainable business practices can foster improved green programs and overall environmental stewardship.

Today we are seeing increased awareness and active participation by business professionals in the development of CSR policies.

Organizations are becoming more involved in green initiatives by adopting sustainable processes and practices, adapting products and services to the low-carbon economy and innovating all areas of their usiness. The net positive on reducing waste, designing green buildings, implementing green operations and maintenance plans — is they all have continually proven to yield a positive return on investment (ROI).

CSR has come to rely on a more complex set of factors than corporate governance alone and also depends on sustainable development, environmental impact and supply chain management.

With the development of the new carbon trading markets, verified emission reduc-

36 | CSR Today | January-March 2013

Sustainability | Investment tions (VERs), also known as carbon offsets, and renewable energy credits (REC’s), it has become easier for organizations to create and measure direct ROI from CSR. Likewise, CSR efforts have shown to yield measurable returns in waste reduction, improved efficiency, diminished liabilities, improved community relations, and brand recognition.

Through communicating clear and measurable sustainability objectives and the implementation of practical and equally functional corporate governance mechanisms, organizations are realizing that they can achieve a ROI through their sustainability efforts.

Integral strategies in ensuring substantive long-term results include: • Define path of progress in CSR and strategically manage expected organizational outcomes • Ensure basic CSR values are culturally integrated across the organization • Adopt an effective engagement strategy with stakeholders to create buyer awareness and loyalty • Properly map organizational objectives and critical success indicators with CSR performance metrics Innovative organizations that understand the value of CSR work to create a corporate culture in which each employee is committed to doing his or her part to improve the environment. According to Forrester Research, effective CSR and sustainability practices within large companies have been shown to contribute to a profit increase of up to 35 percent.

What’s Your ROI? There are proven methodologies that demonstrate ROI benefits to CSR. Partial summaries of several strategies are outlined below and reflect best practices in the implementation of successful CSR programs designed to drive improved operational performance and net positive ROI.

Improving Operational Efficiency Perhaps the strongest – and best documented – argument for engaging employees in environmental practices is the connection between CSR involvement and increased

operational efficiency. Front-line employees are often in the best position to identify inefficiencies and propose improvements.

Educating employees on CSR can improve profitability by supporting greater efficiency through less waste, water and energy usage.

Innovation Employee environmental and sustainability education can be a source of innovation and savings, resulting from the development of new product and service lines as well as new technologies, materials or processes that reduce water, energy usage or harmful materials.

Supply Chain Management Educating employees on sustainability practices throughout the supply chain can lead to greater efficiencies and build collaboration to meet sustainability, quality and other goals. It can also strengthen relationships between a company and its suppliers by aligning values and objectives.

Financial Responsibility We are seeing an unprecedented level of government programs and initiatives designed to drive corporate decision-making within markets that include manufacturing, construction, etc., to invest in implementing practical and measurable green building design, construction, operations, and maintenance solutions. In many cases, the good news is that implementation of sustainable operations can drive increased efficiency through reductions in energy consumption, implementation of building maintenance methodologies that are often cost neutral and decrease the cost of workspaces through use of recycled furniture while changing to low–use lighting (which provides ecofriendly work environments), to name a few.

Government subsidies and incentives often further complement and reward efforts to develop and implement successful sustainable operations and maintenance programs. Nearly all of the points needed for LEED Certification (40 points) can be achieved through the energy and atmosphere category (35 points). It is by far the largest category within the rating system, and emphasizes the combination of energy

performance and renewable energy, which has shown can lower costs by up to 50 percent in the first year alone.

It is widely accepted that green building occupants are healthier and much more productive in their work. With an average of 90 percent of Americans spending more of their time indoors, green buildings often have better indoor air quality and lighting, among other key advantages.

Measuring the impact of CSR in achieving social and environmental goals can be difficult, but is becoming more common if not expected within corporations. Typically in business what gets measured gets managed, and as long as the right metrics system is created and data is tracked accurately almost any environmental CSR initiative can yield positive results.

There seems to be a direct correlation between the implementation of effective green programs and design of green buildings, and improved office worker productivity and employee morale, while driving efficiencies and reduced consumption.

Innovative, forward-thinking companies have learned that they must be fully committed to strategic initiatives that are directly tied to their business’ core competencies (or those of clients, employees, etc.). The advantages of doing so through an effective CSR program, such as building brand recognition and realizing increased sales and fostering trust with employees and community, can be achieved as a win-win in almost all situations. With committed leadership and a strategic approach most companies can find a substantial ROI benefit in CSR. John Garrett serves as CEO of Facilities Management Advisors, LLC. Garrett has consulted with clients that include some of the most recognized Fortune 500 organizations in the world including, Procter & Gamble, General Dynamics, Wyeth Pharmaceuticals, Ameriprise Financial, Coca-Cola Company, Honeywell, Fidelity Investments, MasterCard, among others. Garrett is a published author and regular speaker at conferences and trade shows.

Garrett holds a degree in Physiology from Oregon State University, where he played collegiate football, and pursued his MBA in Strategic Management at Regis University.

January-March 2013 | CSR Today | 37

corporate Transperancy

Transperancy Leads to Long-term Sustainabillity For a Business, it’s performance on Environment consumption and Social interventions is as important as financial performance to achieve sustainability by namita vikas

A

clean image on Governance has its benefits with easy access to capital and to attract the right kind of institutional investors and enhance shareholder value. While a significant part of good governance is measurement and reporting of performance through Annual reports, this is limited to financial performance as mandated by regulators and shareholders.

Since a ‘sustainable economy’ depends not only on economic but social and environmental performance, it is becoming critical for companies world over to monitor, report and reduce its carbon foot print.

For a Business,, it’s performance on Environment consumption and Social interventions is as important as financial performance to achieve sustainability besides profitability. We see examples, predominantly from Europe where Companies apply triple bottom-line approach and at the same time, attain higher profits. These model companies have realized their dependence on limited non-renewable resources and therefore map this impact to 38 | CSR Today | January-March 2013

corporate | Transperancy reduce it. This demonstrates that non- financial reporting which originates out of sensitivity towards society and environment is beneficial and not just a matter of compliance. The role of reporting is very critical since it monitors processes and the relationship with social and environmental factors as part of overall disclosure and accountability.

The extent of Transparency and Accountability of a Business resonates with its Corporate Social Responsibility. Owing to the fact that CSR has 179 definitions internationally, and so approached in different methods, it is yet to evolve as a uniform approach in India. In its latest avatar, CSR is ‘Business Responsibility’, where we see many organizations take responsibility of their impact on society, environment and acting on it positively. However lack of a good measurement system often paralyzes this process of quantifying positive impact.

Therefore, development of an effective measurement system becomes critical, and Disclosure, aided with such a system, would only improve practices in line with company values. With a robust reporting practice, there is an available benchmark against national and international players to improve practices.

A recent news article highlighted an important thought, wherein analogy was drawn between disclosure and good school assessment. It went on to state that periodic checks help recognize deficient areas, analyze strengths and weaknesses, which prepare students better for an all-round performance. The report card in itself is not an end, but is an important means to move from one stage to the next.

In the case of financial reporting we see this systematic approach, as it is regularly measured and similar logic could be extended to non-financial reporting as well.

Following the RIO+20 summit,there is now, pressure on the governments and regulators across the world to develop effective regulatory measures for non-financial reporting to encourage private sector’s contribution to sustainable development, given that transparency and accountability are key elements to such growth.

In India, the Ministry of Corporate Affairs (MCA) in an attempt to help corporate sector with its inclusive development efforts put out the National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business (NVGs). One of the underlying themes is that ‘actions taken by business should be agreeable to disclosure’. A disclosure framework is being put together where businesses would be able to communicate their processes and performance in a transparent manner to both internal and external stakeholders.

The framework that was divulged for public consultation by MCA looked holistic in its approach and progressive in its understanding of Business Responsibility and Sustainability. This disclosure framework is consistent with global reporting frameworks, like GRI, which Indian companies use in their sustainability reports.

In that sense, the framework promises to accommodate GRI to a point, that if companies are already reporting using the GRI framework, all they have to do additionally is clearly map each of the NVG principles to appropriate sections of their GRI Sustainability report.

However, the framework proposed by MCA didn’t provide guidance for the Financial Sector disclosure specifically. YES BANK has used the GRI G3 Financial Section supplement to frame its FY12 Sustainability Disclosure section of the Annual Report following international standards..

The GRI guidelines provide additional reporting indicators to enable better Triple Bottom Line disclosures from the financial sector. A similar inclusion in the Disclosure framework suggested by MCA is desired to make it all-Industry encompassing.

In addition to this, the latest development regarding SEBI’s requirements on submission of a ‘Business Responsibility Report’ is another disclosure knock on the doors of Industry.

Some Indian Business have been ahead on the disclosure curve with about 75 companies reporting on Sustainability either through GRI, UNGC guidelines or integrating in their Annual Reports. That leaves a huge number of laggards who ei-

ther conduct business responsibly but don’t report or otherwise. We typically see four scenarios – those who do but don’t report, those who do and report, those who don’t do and don’t report and those who don’t do and report. The first and second examples are desirable and many such would only strengthen this non financial reporting base.

Reporting is a learning tool to look at processes differently and more closely.

Reporting not only serves the function of effective internal and external communications but also facilitates cross collaboration among different stakeholders. It certainly helps build trust, credibility and visibility among communities and investors apart from enhancing profitability. There are examples which showcase that businesses can operate to generate profits while development priorities are executed in parallel.

While measurement and management systems are about change in behavior and mindset, businesses play the role of catalysts that continuously fuel positive impact. Sustainability is therefore not just an ethical imperative but rather a sound business decision that helps mitigate risks and identify new business opportunities that impact society.

While reporting frameworks are mere enabling mechanisms, they don’t substitute as inputs to CSR strategies. CSR needs to be strategic in nature as any other business stream with the stakeholder and the positive impact to be created in mind. A good start point would be to use the assessment mechanism that would identify where a company stands on the CSR scale and then move the graph higher.

However for India, the larger need is to demystify the CSR terminology and evolve with a common understanding of CSR to be able to create appropriate positive impact.

Namita Vikas is President & Chief

Sustainability

Officer

of Yes Bank and spearheads bank’s Version 2.0 Vision & strategy of further strengthening the bank as a commercially viable financial institution with sustainability principles incorporated within its core operations. she is also advisory Board Member of Indian centre for CSR. January-March 2013 | CSR Today | 39

Book Review

The Responsible Business

T

he Responsible Business offers a new and strategic approach to doing business that holistically integrates responsibility into all aspects of an organization, allowing for returns at every level, business and social. This book is authored by Carol Sanford. She has been the CEO of InterOctave, Inc., a global business resource to Fortune 500 and new economy businesses large and small, for over thirty years. In addition, Carol lectures at universities such as MIT Sloan School of Management, University of Washington Foster School of Business, and University of Michigan Ross School of Business on sustainability, business innovation, and corporate responsibility. This book goes beyond the often well intentioned but limited attempts at sustainability to present a framework that allows organizations to bring responsibility into everything they do and re-imagine success. From innovation, product development, and production processes to

business management, strategic planning, and shareholder development, the author shows how being a Responsible Business is a practical skill that can be applied day-to-day at every level of the business.

No longer just the role of a department or the job of CSR professionals, successful responsibility and business efforts start at the business level, are then taken to the corporate level, and are finally applied throughout the organization.

The Responsible Business outlines a framework for building a responsibility and consciousness infrastructure that applies a living systems view to the business and inspires all of its stakeholders, including shareholders. Throughout the book, illustrated by examples from technology to manufacturing, large and small, public and private, Sanford demonstrates how to make responsibility integral to all aspects of a business as an engine for innovation, profitability, and purpose.

Street Smart Sustainability

I

f you run a small- to medium-sized business and you’re wondering whether or not to go green, this book probably isn’t for you. Although David Mager and Joe Sibilia do include 10 reasons sustainability makes economic and ecological sense, they’re not here to convince you why.

Street Smart Sustainability is about – with detailed, nuts-and-bolts, step-by-step advice on – how to green business green profitably.

The book is written by David Mager and Joe Sibillia. David has helped over 300 Fortune 500 and entrepreneurial companies become green profitably and recently worked as an advisor on sustainability issues to the Obama Transition Team.

Joe is chief visionary officer and part owner of CSRwire.com; an online newswire that distributes news about sustainability and social responsibility to over a million professionals in more than 200 countries. Mager and Sibilia begin by discussing how to get employee buy-in to and motivate your company into becoming sustainable. Then they cover how to get started – auditing your current sustainability po-

40 | CSR Today | January-March 2013

sition, developing a plan to move forward and quantitatively measuring your progress.

Street Smart Sustainability” allows organizations to address sustainability on a broad-based and comprehensive level. Rather than advocating the typical approach aimed solely at harvesting the low hanging fruit (such as making the switch to CFLs or low-flow faucets), Mager and Sibillia offer a prescriptive means of analyzing an entire organization with a systematic approach. Instead of focusing on the current state of the environment or proselytizing the merits of green business, the authors dive directly into the types of reforms that can lead a business on the path toward true sustainability.

Street Smart Sustainability is a roadmap to the sustainable low-hanging fruit at a time when the public is hungry for businesses that demonstrate genuine respect for the environment. It provides simple tools so you can make continuous, cost-effective improvements in your sustainability practices – practices that diffuse into the organizational DNA and become fixtures, shifting the prevailing corporate culture.

RNI No. MAHENG13231/13/1/2012-TC