Report on social investments in Russia by United Nations Development Programme

British Embassy Moscow

Russia

Report on Social Investments in Russia 2008 Integrating CSR Principles into Corporate Strategy

MOSCOW 2008

British Embassy Moscow

Russia

Report on Social Investments in Russia 2008 Integrating CSR Principles into Corporate Strategy

MOSCOW 2008

ISBN 978 5 902500 29 2

UDC 005.35(470+571)

The Report on Social Investments in Russia 2008 has been prepared by the Russian Managers Association as part of the UN Development Programme's Global Compact promotion project together with the St. Petersburg State University's Graduate School of Management and with the support of the Strategic Programme Fund of the British Embassy. The report has been compiled by Russian and international experts. The authors' opinions do not necessarily reflect the views of the UN system and institutions, where they are employed.

INTERNATIONAL EDITORIAL PANEL:

WRITING TEAM:

O. Yu. Golodets, President of the All Russia Cross Industry Union of Employers – Producers of Nickel and Precious Metals

Yu. E. Blagov, Director of the Center for Corporate Social Responsibility, Graduate School of Management, St. Petersburg State University

Maurizio Zollo, Bocconi Dean Chaired Professor in Strategy and Corporate Responsibility, Bocconi University (Italy), Director of the Center for Research on Organization and Management (CROMA)

A. E. Dynin, First Deputy Executive Director, The Russian Managers Association

Andrew Kakabadse, Professor of International Management Development, Cranfield University School of Management (Great Britain) Stephen B. Young, Global Executive Director, Caux Round Table (USA)

LEAD AUTHOR: Yu. E. Blagov, Director of the Center for Corporate Social Responsibility, Graduate School of Management, St. Petersburg State University

E. A. Ivanova, Director of the Strategic Studies Department, The Russian Managers Association A. E. Kostin, Executive Director, NGO ‘CSR – Russian Centre’ S. E. Litovchenko, Executive Director, The Russian Managers Association Yu. V. Ovchinnikova, Analyst of the Strategic Studies Department, The Russian Managers Association S. P. Peregudov, Chief Research Officer, The Institute of World Economy and International Relations (IMEMO) A. A. Savchenko, Researcher of the Center for Corporate Social Responsibility, Graduate School of Management, St. Petersburg State University I. S. Semenenko, Chief Research Officer, IMEMO RAS Yu. A. Vedenyapina, Project Coordinator of the Strategic Studies Department, The Russian Managers Association

The Report on Social Investments in Russia 2008 / Yu. E. Blagov (etc.); Editors in Chief: Yu. E. Blagov, S. E. Litovchenko, E. A. Ivanova – Moscow: The Russian Managers Association, 2008 – 88 pages. The second release of the Report on Social Investments in Russia is presented herewith. Its main focus is to analyse the current state of corporate social responsibility and social investment trends in 2004 2008. The report provides an overview of the approaches to corporate social investments as an element of effective corporate strategy aimed at the long term sustainable development of a company. By using the social investment index of Russian business, calculated in the same way as in 2004, the dynamics of social investment flows of Russian companies were tracked by industry and investment type, and future developments have been forecast. The report is based on the findings of quantitative survey on corporate social responsibility carried out by the Russian Managers Association as well as on data provided specially by Russian companies. Expert assessments and material from topical events organised by the Russian Managers Association were also used. The report is aimed at both Russian and international audiences: business community leaders, government officials, representatives of international agencies and civil society organisations. © United Nations Development Programme, 2008 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means whatsoever, electronic, photocopying or otherwise, without the prior written permission of the copyright owners.

PREFACE

am pleased to present the second release of the Report on Social Investments in Russia. This paper is a sequel to the similarly named research project of 2004 which explored the phenomenon of social investments in Russian business. This is a unique joint project of a consortium between the Russian Managers Association, the UN Development Programme, the Strategic Programme Fund of the British Embassy and St. Petersburg State University's Graduate School of Management carried out by a team of leading Russian and interna tional experts on corporate social responsibility. This report is based on the findings of a compre hensive survey of leading Russian companies' CSR practices and aims to address the following goals: to classify existing experience and identify innova tive practices of socially responsible business con duct, formulate common approaches to under standing CSR and social investments, analyse quantitative and qualitative trends in social invest ment indices of Russian business over the last four years, and make recommendations on CSR for the government, private sector and future researchers. The focus of this report is on the integration of CSR principles into business processes, managerial routines and ultimately into the corporate strategy of successful Russian companies seeking long term sustainable development. This publication is released amid turmoil in the global economy, which pushes the quest for sustainable development of business onto the central stage. Hopefully, our report will prove to be a helpful tool for advanced domestic companies to build long term corporate strategies.

The conceptual core of the report described in the first chapter evolves around establishing common approaches to understanding CSR and the defini tion of corporate social investments as an essential element of efficient corporate strategy. The second chapter deals with the actual implementation of CSR principles through multilateral dialogue between companies and all stakeholders, from employees through to the government. Finally, the third chapter sets forth the major findings of the comparative analysis of data from 2004 and 2008 reflecting the evolution of the volume and structure of social investments by sector, both quantitatively and qualitatively. I am certain that the report's conclusions and recommendations, together with commentaries by respected CSR experts, will provide much food for thought to the business community, government officials and future researchers, thereby promoting the role of socially responsible business in Russia. You are cordially invited to contribute to the inter active discussion of the report's major conclusions, theses and recommendations at the Russian Managers Association's web site: www.amr.ru.

Yours sincerely,

Sergei Litovchenko, Executive Director of the Russian Managers Association

FOREWARD BY THE INTERNATIONAL EDITORIAL PANEL

he nature and content of corporate social responsibility (CSR) has been discussed in business and academic communities world wide for more than half a century. Huge though the accumulated theoretical knowledge is and abundant though the practical experience of doing business in a socially responsible way is, corporate executives continually return to the same questions: is it worth following CSR principles in earnest? To what extent and where exactly are these principles to be imple mented? Does the ‘social investments’ buzz stand for a real competitiveness enhancer or just forced expenses? These questions are hard to answer and require due regard to the specific characteristics of the social and economic development of Russia and particular industries and companies. In our view, however, no national peculiarities should be allowed to over shadow the already available, suffered through and tested results and approaches. Here are just few of them: Firstly: the CSR agenda is not to be viewed as something secondary and extraneous to the busi ness as such, with the terms ‘ethical’ and ‘efficient’ as applied to business being not at all antonymic. Furthermore, promotion of responsible and mutually beneficial relations with the entirety of stakeholders becomes vital for sustainable development both for corporations, and society as a whole. Secondly: regardless of the preferred terminology – ‘corporate social activity’, ‘corporate citizenship’, ‘corporate sustainability’ or simply CSR, in manage rial terms this is about a holistic system: principles, their implementation in specific processes, and the outcomes of the latter that can and should be appraised. Thirdly: integration of CSR into corporate strategy and recognition of corporate social investments as a real source of competitive advantages require com

panies to make serious managerial efforts to create, develop and match necessary resources, and also require them to develop their corporate governance system and undergo relevant phases of ‘organisa tional learning’. As was rightly stressed by the authors of a special January 2008 issue of the Economist, a socially responsible business is ‘just a good business!’. Corporate social activity of Russia's leading compa nies as presented and analysed herein illustrates in many respects this premise. Importantly, the leading companies look equipped to change and to work out common progressive approaches. With this in view, it is hard to overestimate the consolidating impact of the Russian Managers Association Committee's position on the key issues of CSR development. Yet, the overall situation in Russian business is improving very slowly. But time waits for no one. If business still construes CSR as forced losses, its striving for ‘sustainable development’ may actually result in ‘sustainable lagging’. We hope in earnest that this will never happen thanks, among many other things, to this report.

P.S.: This report was made before yet another financial crisis hit the global economy. The unfold ing crisis is largely a crisis of trust begotten by many companies' short termism at the expense of sus tainable development and failure to build a system of reciprocally rewarding relationships with the entirety of their stakeholders. This crisis manifests the actual, as opposed to the declarative, level of CSR in global business. We are not to forecast the extent to which economic changes will impact the relevance of the CSR agenda and the scale and rate of evolution of corporate social performance. However, we believe that there will be responsible companies who will show greater vitality in the face of the crisis and will lead the economic upturn.

ACKNOWLEDGEMENTS

We express our deepest appreciation and gratitude to everyone who helped make this report possible.

SPECIAL THANKS To the United Nations Resident Coordinator and United Nations Development Programme Resident Representative in the Russian Federation, Marco Borsotti, for giving extensive support to the project. We thank all the staff of the UNDP Moscow office and, in particular, Larissa Zelenina, Viktoria Zotikova, Liliana Proskuryakova and Evgeniy Levkin, for their unfailing commitment to the project and cooperation through out the whole process. Our thanks go to the British Embassy for providing financial support and, in particular, Yana Trukhina, for her sensitive attitude. We express our profound gratitude to the Dean of St. Petersburg State University's Graduate School of Management, Valery Katkalo, for his assistance and unerring belief in the project's success.

TO ALL THE EXPERTS For their validation of the general concept of the report, participation in expert interviews and discussions on its main theses: Igor Beketov, OJSC LUKOIL; Alexander Bim, OJSC SUEK; Andrey Buzov, OJSC OGK 4; Andrey Bykov, OJSC Russian Railways; Tatyana Dreyling, OJSC SIBUR Holding; Veronika Kabalina, OJSC MMC Norilsk Nickel; Nadezhda Kuklina, OJSC Russian Railways; Oleg Kulikov, All Russia Trade Association of Employers in the Power Industry; Marina Mikhailova, Renova Management AG, Renova Group of Companies; Peter Neev, OJSC TNK лњла Management; Pavel Pletnev, Rosneft Oil Company; Olga Fedoseeva, Management Company Evolyutsia.

TO THE MEMBERS OF THE RUSSIAN MANAGERS ASSOCIATION'S COMMITTEE FOR CORPORATE RESPONSIBILITY Represented by its Chairperson, Olga Golodets, for their active support of the project.

TO THE COMPANIES WHICH PARTICIPATED IN THE SOCIAL INVESTMENTS INDEX OF RUSSIAN BUSINESS SURVEY 2008 For your willingness to disclose your CSR strategy and corporate social investments and to complete our questionnaire.

TO OUR ORGANISATIONAL PARTNERS For their expert support: the Agency of Social Information, the Russian representative office of the Charities Aid Foundation and the Global Business Coalition on HIV/AIDS, Tuberculosis and Malaria.

TO ALL THOSE WHO PARTICIPATED IN THE PUBLIC EVENTS ON CORPORATE SOCIAL RESPONSIBILITY ORGANISED BY THE RUSSIAN MANAGERS ASSOCIATION For your active involvement, suggestions and ideas which we have tried to reflect in this report.

CONTENT CONCLUSIONS AND RECOMMENDATIONS ....................................................... 8

CHAPTER 1. CSR AND STRATEGIC MANAGEMENT: THE ROLE OF SOCIAL INVESTMENTS ............................................................ 12 1.1. Corporate Social Performance: the Scope of the Report and Terminology ................. 12 1.2. Integration of CSR into Corporate Strategy .............................................................. 16 1.3. CSR in the Corporate Governance System................................................................ 18 1.4. Organizing CSR: The Managerial Perspective .......................................................... 21 1.5. Corporate Social Investments as an Element of an Efficient Corporate Strategy .......... 26

CHAPTER 2. STRATEGY OF BUSINESS'S INTERACTION WITH STAKEHOLDERS .......... 32 2.1. ‘Internal’ and ‘External’ Stakeholders: Means of Interaction ...................................... 32 2.2. Impact of Shareholders and Investors on the Formation of CSR Strategy .................... 36 2.3. Business Government Interaction ........................................................................... 37 2.4. Employees in the Social Investment System ............................................................. 39 2.5. Educational and Scientific Institutions in their Interaction with Business ..................... 41 2.6. Local Communities: Prospects for Partnership ......................................................... 42 2.7. Consumers as Recipients of Social Investments ....................................................... 44

CHAPTER 3. EVOLUTION OF CSR AND SOCIAL INVESTMENTS IN RUSSIA .............. 48 3.1. Scale of Companies' Social Activity: Quantitative Social Investment Index .................. 48 3.2. Social Investments by Sector .................................................................................. 50 3.3. Scope and Consistency of Making Social Investments .............................................. 55 3.4. Forecast of Changes in Social Investments .............................................................. 56 3.5. Weaknesses in the Organisational Support for Social Investments ............................. 58

APPENDICES APPENDIX 1. Glossary ................................................................................................... 62 APPENDIX 2. Research Methodology ............................................................................. 63 APPENDIX 3. Methodology Used for Calculating the Social Investment Index of Russian Business .................................................................................. 65 APPENDIX 4. Best CSR and Social Investment Practice of Russian Companies ................. 67 APPENDIX 5. Organisations and Companies which Participated in the Social Investment Index of Russian Business 2008 ................................................. 81

7 List of figures, charts and tables used in the report Figure 1.1.

Model of Corporate Social Performance

Figure 1.2.

The pyramid of Corporate Social Responsibility

Figure 2.1.

Interaction of business with major stakeholders

Chart 1.1.

Companies' compliance with the principles of the UN Global Compact and Social Charter of Russian Business

Chart 1.2.

Major goal of a company's corporate social responsibility strategy

Chart 1.3.

Corporate governance actors who authorise new forms of CSR and CSR activities

Chart 1.4.

Documents which enact a company's corporate social responsibility strategy

Chart 1.5.

Departments entrusted with implementing CSR strategy

Chart 1.6.

Publication of periodic non financial reports

Chart 1.7.

Standards and principles governing periodic non financial reporting

Chart 1.8.

Selection criteria for targeting corporate social investments (programmes)

Chart 1.9.

Appraisal of corporate social investment efficiency

Chart 1.10.

Criteria used by companies to appraise the efficiency of corporate social investment

Chart 2.1.

Communication mechanisms for â&#x20AC;&#x2DC;externalâ&#x20AC;&#x2122; stakeholders

Chart 2.2.

The most efficient government incentives for corporate social investments

Chart 2.3.

Take up of government incentives for corporate social investments

Chart 2.4.

Corporate social programmes as a partial substitute for public social expenditures

Chart 3.1.

Social investments by Russian enterprises per employee by sector in 2003 and 2007

Chart 3.2.

Social investments by Russian enterprises as a percentage of gross sales by sector in 2003 and 2007

Chart 3.3.

Integral qualitative social investments index and its components

Chart 3.4.

Total planned allocations for corporate social programmes in 2008 compared to actual expenditures in 2007

Chart 3.5.

Breakdown of Russian corporate social investments, 2007 / 2008

Chart 3.6.

Forecast of changes in social investments by Russian companies, 2003 / 2004

Table 1.1.

CSR strategy goals by sector

Table 1.2.

Corporate involvement in society: a strategic approach

Table 1.3.

The five stages of CSR organisational learning

Table 1.4.

Choice of department entrusted with implementing CSR strategy as a function of the declared goal of such strategy

Table 1.5.

Departments entrusted with implementing CSR strategy, by sector

Table 1.6.

Periodic non financial reporting as a function of annual financial reporting in accordance with international standards

Table 1.7.

Selection criteria for targeting corporate social investments (programmes) as a function of the goals of CSR strategies

Table 2.1.

Means of external communication for achieving various CSR goals

Table 3.1.

Quantitative social investment indices in 2003 and 2007

Table 3.2.

Quantitative Russian company social investment indices by sector in 2003 and 2007

Table 3.3.

Application of social investments by industry

CONCLUSIONS AND RECOMMENDATIONS

This report reflects the current standing of CSR and corporate social investments in Russian business, and analyses key CSR and corporate social investment development trends and characteristics. The work carried out by the report's authors has led to the following major conclusions and recommendations for both the private sector and the government, as well as for future researchers.

Conclusions 1. The development of CSR in Russian business is generally in line with the global trend of CSR princi ples being gradually integrated into corporate strategy and the transition to social investment ideology matching the long term interests of both society and business. 2. During 2003 2008 leading Russian companies have been gaining extensive knowledge from inter national experience, accumulating their own expe rience of corporate social performance and identi fying reasonable targets and the optimal scale of social investments. 3. The dissemination of ‘best practices’ and estab lishment of common approaches to the develop ment of corporate social investments is still largely hindered by the lack of a common understanding of the nature of CSR and the systemic innovative character of corporate social performance. 4. The growing willingness of companies to link CSR to the gaining of long term competitive advantages is a long way from the traditional notion of the forcible nature of corporate social pro grammes as ‘substitutes’ for the respective public expenditures. 5. The 2003 2007 quantitative social investment index of Russian business did not show any major growth, remaining broadly within the same brac kets. The structure of social investments is still dominated by ‘internal’ stakeholders, principally company employees, to the prejudice of ‘external’

stakeholders, which can be considered a deep rooted characteristic of the Russian CSR model. 6. 2007 did not demonstrate any significant growth in the qualitative social investments index of Russian business compared to 2003 either. The integration of CSR into the corporate governance system and promotion of organisational support for corporate social activity progressed slowly and, on the whole, chaotically. Just as in 2003, CSR prac tice in companies is mainly a responsibility of HR or PR departments. 7. CSR development issues in Russian business are properly recognised by leading domestic com panies who increasingly demand a continuation of the national dialogue and building of a ‘national CSR platform’, development of the relevant edu cational and consulting services market, and examination and implementation of the best global practices.

Recommendations to the private sector 1. View corporate social activity as an integral inno vative system which not only helps to address societal problems and relevant business development strategies effectively, but also provides companies with sustainable competitive advantages. 2. Actively integrate CSR into the corporate gover nance system, promote the organisation of corpo rate social activity by setting up, inter alia, desig

nated committees in the boards of directors, inte grating CSR principles into managerial routines and periodic social reporting.

4. Support, by way of tendered financing and otherwise, development of civil society institutions involved in dialogue with the business community.

3. Maintain interaction with both ‘internal’ and ‘external’ stakeholders, regarding balanced mutually beneficial relations with them as a crucial resource for the sustainable development of a company.

5. Further dissemination of ‘sustainable develop ment’ ideas through the educational system, governmental and non commercial entities, and the media.

4. Integrate CSR principles into the management philosophy, show socially responsible leadership in promoting public dialogue and building a ‘national CSR platform’.

Recommendations to future researchers

5. Maintain the exchange and dissemination of the best CSR practices at public, professional and expert forums.

Recommendations to the public sector 1. Maintain an open dialogue with the business com munity on how jointly to tackle the current problems of Russian society, focussing on the ways to a recip rocally rewarding public private partnership. 2. Promote a legal basis for and practice of encouraging, materially and morally, the business community to engage in solving societal problems through corporate social activity. 3. Facilitate socially responsible business practice by fighting corruption and by improving the overall performance of the State machinery.

In order to examine the current CSR issues faced by the Russian business community, record and disseminate the best global practices and generate new CSR knowledge, research should cover the following: 1. CSR's role and place in Russia's economic development strategy (CSR and the four ‘I’s: insti tutions, innovations, investments and infrastruc ture). 2. Corporate social performance in an economic crisis. 3. Corporate social performance as a function of sector and form of incorporation. 4. Role and place of civil society institutions as promoters of public CSR discussion. 5. CSR in SMEs: specific features and develop ment prospects.

CSR and Strategic Management: the Role of Social Investments

C H A P T E R

1.1. Corporate Social Performance: the Scope of the Report and Terminology 1.2. Integration of CSR into Corporate Strategy 1.3. CSR in the Corporate Governance System 1.4. Organizing CSR: The Managerial Perspective 1.5. Corporate Social Investments as an Element of an Efficient Corporate Strategy

Report on Social Investments in Russia 2008 Integrating CSR Principles into Corporate Strategy

CHAPTER 1

Chapter 1. CSR and Strategic Management: the Role of Social Investments

he four years that have passed since the first Report on Social Investments in Russia have brought CSR discussion in the domestic business commu nity a long way from where it was, devising key definitions and concepts as well as attempting to identify specific characteristics of the Russian model of corporate social responsibility. The intermediate results of that discus sion were summarised in the progressive position formulated by the Russian Managers Association's Committee for Corporate Responsibility which expressed the consolidated opinion of the senior manager professional community with regard to the current issues of CSR development in the context of the present day economy and social and societal transformations1. Now practical examples of responsible busi ness conduct such as social programmes and dialogue with stakeholders, corporate social reports and ethical codes can be found. CSR topics are debated at the most authoritative forums. Having recognised a strong demand for relevant managerial knowledge, domestic business education professionals are now also in the loop of the discussion. Analysis of leading domestic company practices shows that the development of CSR in Russian business is generally aligned with global trends. This, however, gives no rea son to relax as many critical problems remain on the agenda. Whilst companies declare their adherence to CSR principles, recognise its strategic potential and report progress of social investments, the variety of social programmes does not always seem to evolve around any clear logic, and the expected results are not always achieved.

1.1. CORPORATE SOCIAL PERFORMANCE: THE SCOPE OF THE REPORT AND TERMINOLOGY As of today, there is no single generally accepted definition and, therefore, no com mon understanding of the nature of corporate social responsibility. Given the national peculiarities of societal expectations and specifics of the business of different com panies, the practicality of any abstract definition would be very limited. However, by formulating their understanding of CSR, companies do not simply practise definition making, but determine the role and place of the relevant practices in the development of their business. Thus, the CSR definition deliberately assumed by a company has wide implications, unless such definition is merely declarative. 1. See: Current Issues of the Development of Corporate Social Responsibility. Position Paper of The Russian Managers Association Committee for Corporate Responsibility, 2007. Russian Managers Association. Moscow, 2007.

Report on Social Investments in Russia 2008 Integrating CSR Principles into Corporate Strategy

CHAPTER 1

Most companies featured in this report (see Appendix 2 for our research methodolo gy, and Appendix 5 for the list of survey participants) keep to generalised approaches aligned with the latest documents of international and Russian organisations, including the approach proposed by the Russian Managers Association's Committee for Corporate Responsibility (see Glossary, in Appendix 1). All of these approaches regard CSR as responsibility to society represented by a system of stakeholders, and support the idea of sustainable development both at the corporate and ‘macro’ level. Unconventional definitions of CSR which highlight certain specific features are used by as few as 15 respondent companies out of 102. Such definitions, nevertheless, are always illustrative; they were ‘born’ the hard way through trial and error, and have a sense of rightfulness and clear position behind them. Here are four typical examples (see insertion 1.1). Each of the definitions cited is well thought out and correct in its own way, but evi dently different in substantial respects. Firstly, these definitions construe CSR both as ‘commitment’ (OJSC SUEK), as ‘activity’ (OJSC OGK 4 and OJSC Uralsvyazinform), and as ‘contribution to the development of society’ (OJSC Tatneft). Thus, companies focus on various elements of the system of corporate social performance as a set of CSR principles realised in the managerial processes of corporate social responsiveness which bring measurable outcomes of the respective corporate behaviour (see fig. 1.1). Figure 1.1

Model of Corporate Social Performance PRINCIPLES Corporate Social Responsibility

PROCESSES Corporate Social Responsiveness

OUTCOMES Corporate Behaviour

Source: Wood D. Corporate Social Performance Revisited // Academy of Management Review.1991.№16. P. 694 (adapted).

Secondly, these definitions vary in their coverage of CSR levels as set out in the clas sic model of A. Carroll: economic, legal, ethical and philanthropic responsibility (see fig. 1.2). OJSC OGK 4 focuses on meeting consumer needs as the key to fulfilling economic responsibility; OJSC Uralsvyazinform refers to all CSR levels, with respon sibility being addressed to specific stakeholders; OJSC SUEK's definition of CSR dis regards basic economic responsibility, at least directly; OJSC Tatneft mainly links CSR to philanthropic responsibility, but underlines its connection with the mechanism of social investments. Thirdly, these definitions differ in how they regard CSR's ‘voluntariness’. While OJSC Tatneft takes the entire CSR as a ‘voluntary’ contribution, OJSC SUEK refers to ‘volun tariness’ only in connection with investing in social causes, OJSC Uralsvyazinform does so only in the context of sponsorship and charity programmes, with OJSC OGK 4 ignoring this issue entirely, as ‘voluntariness’ of economic responsibility is traditionally non debated.

Insertion 1.1 1. OJSC OGK 4: ‘The responsibility of generating companies is to provide a reliable, high quality supply of electrical and heat power. OGK 4's contribution is to ensure its power facilities have the required capacity, are reliable and supply power which is affordable for existing and potential customers in its areas of operation’. 2. OJSC Uralsvyazinform: ‘Social responsibility comprises: 1) Responsibility to the company's clientele, i.e. providing the full range of high quality com munication services; 2) Responsibility to the state, i.e. paying taxes in full and promoting the region's development; 3) Responsibility to society, i.e. voluntary partici pation in various sponsorship and charity pro grammes; 4) Responsibility to the staff, i.e. providing high salaries and certain social guarantees to the employees subject to competition and labour productivity’. 3. OJSC Siberian Coal Energy Company (SUEK): ‘SUEK’s corporate social responsibility is the Company's conscious acknowledgement of its obligations to its stakeholders (shareholders, partners, employees, local communities, public institutions), including full compliance with appli cable legislation and voluntary and targeted investment in the achievement of social objec tives in conjunction with the Company's long term strategy and social policy’. 4. OJSC Tatneft: ‘CSR is a business's voluntary contribution to the development of society through social investments aimed at professional growth and the social protection of personnel, support for health care, sport, culture, education and environmental causes. Such activities should be systemic in character and accord with the interests of all stakeholders’.

Source: Russian Managers Association, 2008.

Report on Social Investments in Russia 2008

Integrating CSR Principles into Corporate Strategy

Insertion 1.2 ‘Yes, of course, we stick to the Social Charter. We also stick to the UN Global Compact. However, the first priority for the Company is real action and the implementation of its long term strategy and social policy. Social responsibility is seen by us as the coordination of our activities with our stakeholders’ interests in order to ensure sustainable development of the Company and its stakeholders. The latter are not as much interested in any declared principles as they are in the specific content of our programmes and projects: what we actually do to achieve our goals and fulfill our commitments’.

Alexander Bim, Advisor to General Director, OJSC SUEK Source: Russian Managers Association, 2008.

CHAPTER 1

Figure 1.2

The pyramid of Corporate Social Responsibility PHILANTHROPIC RESPONSIBILITIES Be a good Corporate Citizen* ETHICAL RESPONSIBILITIES Be Ethical LEGAL RESPONSIBILITIES Obey the Law ECONOMIC RESPONSIBILITIES Be Profitable by satisfying consumer demand Source: Carroll A. The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organisational Stakeholders // Business Horizons. 1991. July August. P. 42 (adapted). *Identification of corporate citizenship and philanthropic responsibility conforms to the ‘classic’ interpretation wide spread in American scientific literature. If taken broadly, corporate citizenship is viewed as a model of a company's responsible societal conduct aiming for its systemic interaction with other social institutions.

Insertion 1.3 ‘It is not overly good that a business spends up to 30.6% of its net income on social programmes (based on data from the first release of ‘Report on Social Investments in Russia – 2004’). Why? Because this removes money from the business's turnover. Therefore, the business cannot upgrade its produc tion when needed, carry out innovations and develop new competitive products which meet the latest requirements and standards. The business involves itself, say, in supporting the town which hosts its pro duction facilities, but fails to upgrade its facilities in a timely fashion. So, without the introduction of new economically justified and mutually beneficial interac tion mechanisms to enable simultaneous resolution of the current issues relating to both the locality and the development of the business, instead of simply chan neling significant funds from each enterprise into social causes, there will come a day when our busi ness and its output become uncompetitive in the market and, consequently, the very source of social welfare for the local community can be lost’.

Olga Fedoseeva, Head of Philanthropy Projects Strategic Consulting, Management Company Evolyutsia Source: Russian Managers Association, 2008.

These differences illustrate serious problems. Above all, the inadequately systemic approach to corporate social performance results in occasional de linkage of the related processes from CSR principles and in an overt opposition between the moral case for social and environmental programmes and the instrumental case for social investments. An allusive sign of the acuteness of the situation is how most companies analysed in the report treat the principles of the UN Global Compact and the Social Charter of Russian Business of RUIE as a kind of ‘best practice’ of CSR principles (see chart 1.1). Chart 1.1

Companies' compliance with the principles of the UN Global Compact and Social Charter of Russian Business, % 34

Not officially joined, but comply with the principles

46 21

No, but thinking about joining

16 20

No Officially joined

16 UN Global Compact

5 11

Social Charter of Russian Business

Note: Data is given as a percentage of the respondents who answered both questions on compliance with the principles of the UN Global Compact and Social Charter of Russian Business. Source: Russian Managers Association, 2008.

Only 5 respondent companies have joined the UN Global Compact, and 11 have joined the Social Charter of Russian Business of RUIE, while 20 and 16 companies respectively are not at all interested in those principles. The prevailing position, how

Report on Social Investments in Russia 2008 CHAPTER 1

Integrating CSR Principles into Corporate Strategy

ever, is a ‘neutral’ one whereby companies do not challenge those principles and are ready to advocate them, but do not regard them as an essential element of corporate social activity (see insertion 1.2). As for other ‘best practices’ such as the Caux Round Table Principles for Business, these are barely known to the domestic business com munity. No less important, albeit largely false, is the dilemma of ‘choice’ between CSR and efficient business (see insertion 1.3). On the one hand, interpretation of CSR as a ‘voluntary’ responsibility beyond economic and legal obligations limits corporate social performance to the traditional set of ‘social programmes’ and makes of it a prerogative of the ‘noble club’ of rich and successful companies. Companies which concentrate their resources on investments in production, technological and product innovations or which are just struggling to survive are driven out of the ‘socially responsible’ confines. On the other hand, the narrow economic and legal approach to CSR effectively justifies rejection of broadly defined social expenditures. This dilemma, however, has quite an obvious solution: CSR can and must be imple mented in the interests of both business and society. A business receptive to the numerous needs of society, but inefficient and increasingly exposed to bankruptcy is a ‘socially irresponsible’ business. In their turn, companies ‘advanced’ in the imple mentation of CSR principles can and must claim competitive advantages regardless of their original reasons (see insertion 1.4). If linked to such advantages, CSR issues acquire a strategic nature, with social investments ceasing to be a ‘figure of speech’ and turning into a plain tool for strategic management. In fact, CSR is a matter which concerns the competitiveness of both individual companies and the national economy as a whole. It is quite indicative that the 2004 2007 international research project RESPONSE supported by the European Commission's Directorate General for Research linked the implementation of CSR principles to ‘processes’ and ‘products’. And even more so, as the project's findings show, ‘the research found that in the high alignment companies, managers are more likely to express the business case for corporate social responsibility in terms of innovations to develop new market opportunities’2. Such an approach looks particularly relevant in the light of the four ‘I’s programme of economic development of Russia promulgated by the President of the Russian Federation. Innovative activity, transition from ‘social costs’ to social investments, support for institutions and development of infrastructure – not only social, but also transport, energy and telecommunicational – are becoming CSR objects. This also expands significantly the headroom for mutually beneficial public private partnership, while the very development of corporate social activity plays a role in important manage rial innovation. And, finally, the differences in understanding CSR are largely attributable to the global tradition of presenting socially responsible companies by a record of ‘good deeds’. In Russia, this tradition is further encouraged by existing stereotypes of societal expectations regarding large enterprises particularly those which form company towns. The global situation, however, is changing (see insertion 1.5). And a similar change, as the research suggests, is being experienced by Russian business, whose leaders increasingly tie CSR issues to their corporate strategy. 2. Understanding Corporate Responsibility: An Executive Briefing. Results and Insights from Project RESPONSE. 2008.

Insertion 1.4 ‘What is the point of asking if [a company] practises corporate social responsibility or not? Of course, it always does. This is like asking whether a person has a culture or not. Culture is an attribute of any person; it simply varies from one person to another. At the same time, culture commonly implies a high level of culture. This duality is also true for CSR’.

Tatyana Dreyling, Chief Expert of Corporate Communications Department, SIBUR Holding Source: Russian Managers Association, 2008.

Insertion 1.5 A survey of 250 world business leaders carried out by the IBM Institute for Business Value showed that, whilst preferring to talk of CSR in public in terms of philanthropy, in practice they increasingly orient to the strategic approach: – over 2/3 (68%) of the world business leaders surveyed by IBM are focusing on CSR activities to create new revenue streams; – over a half (54%) believe that their companies' CSR activities are already giving them an advan tage over their closest competitors.

Source: Attaining Sustainable Growth Through Corporate Social Responsibility. IBM Institute for Business Value, 2008. P. 3.

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1.2. INTEGRATION OF CSR INTO CORPORATE STRATEGY Representatives of the majority of companies covered by this report emphasise the link between CSR and corporate strategy. However, even here there are signs of diver gence in understanding the nature of CSR. Respondent companies interpret CSR as a starting point for the formation of a corporate strategy, as an ‘element of the general corporate business strategy’ enabling non financial risk management, and as an underlying ‘ideology’ for HR strategy (see insertion 1.6). Insertion 1.6 ‘Our corporate social responsibility covers production, environmental and social activity. Fulfilment of this responsibility is what the company's strategy is all about. Everything here is interconnected’.

Igor Beketov, Head of Corporate Communications, OJSC LUKOIL, General Director of the LUKOIL Charity Fund

‘Corporate social responsibility is directly accounted for in the company's strategy. If a company is to perform efficiently, successfully, and with a view to a long lasting market presence, then corporate social responsibility must be built into its business strategy. Through corporate social responsibility, plainly speaking, business can manage non financial risks’.

Olga Fedoseeva, Head of Philanthropy Projects Strategic Consulting, Management Company Evolyutsia

‘Corporate social responsibility is a part of our business development. Our strategic vision of this notion is actualised in our HR strategy. Although it is quite casually labelled, this strategy is our realisation of CSR ideology. Our HR strategy is, in its turn, tied to our strategies of production development up to 2020’.

Veronika Kabalina, Head of Social Programmes Department, OJSC MMC Norilsk Nickel Source: Russian Managers Association, 2008.

The divergence in interpretations, though, does not affect the agreement on CSR's link to competitiveness. An overwhelming majority of the respondents (83%) view CSR as a means for companies to achieve ‘long term competitive advantages’. At the same time, about half of them do not deny such strategic goals as ‘maintaining reputation in the medium term’ (54%), and ‘mitigating risk of damage to stakeholders in the short term’ (40%) (see chart 1.2). Chart 1.2

Major goal of a company’s corporate social responsibility strategy, %

Gaining long term competitive advantages 54

Maintaining reputation in the medium term Mitigating risk of damage to stakeholders in the short term

Note: Data is given as a percentage of the respondents who answered the question. The total of responses exceeds 100% as the respondents could choose as many answers as applicable. Source: Russian Managers Association, 2008.

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It is quite characteristic that ‘gaining long term competitive advantages’ as the goal is almost equally recognised irrespective of the company's sectoral cluster. Contrastingly, the services sector shows, as expected, stronger drive for ‘medium term reputational effects’ (32% vs. 24% in the primary sector and 29% in the processing sector), with accordingly weaker drive for ‘mitigating risks in the short term’ (see table 1.1). Table 1.1

CSR strategy goals by sector, % Sector Goal

Primary sector

Processing sector

Services sector

Mitigating risk of damage to stakeholders in the short term

Maintaining reputation in the medium term

Gaining long term competitive advantages

Other

Total

100

Note: Data is given as a percentage of the respondents who answered the question. Source: Russian Managers Association, 2008.

No less important is the question of how exactly companies attempt to achieve the desired competitive advantages and what kind of advantages those are. Using the popular model of M. Porter and M. Kramer, two possible ways for corporate involvement in society that lead to competitive advantages can be outlined: ‘responsive CSR’ and ‘strategic CSR’ (see table 1.2).

Corporate involvement in society: a strategic approach

Table 1.2

Generic Social Impacts

Value Chain Social Impacts

Social Dimensions of Competitive Context

Good citizenship

Mitigate harm from value chain activities

Strategic philanthropy that leverages capabilities to improve salient areas of competitive context

‘Responsive CSR’

Transform value chain activities to benefit society while reinforcing strategy

‘Strategic CSR’

Source: Porter M., Kramer M. Strategy and Society: The Link between Competitive Advantage and Corporate Social Responsibility // Harvard Business Review. December 2006. P. 89.

‘Responsive CSR’ is about positioning a company as a ‘good corporate citizen’ and mitigating harm from value chain activities. This approach ensures medium term maintenance of reputation and mitigation of non financial risks in the short term. ‘Strategic CSR’ comprises strategic philanthropy enhancing the company's competitive position in its industry, and transformation of the value chain by appropriate inno vations. This approach stems from the idea of common interests and is directed toward long term competitive advantages. Opposition of these two approaches as ‘better’ and ‘worse’ is definitely incorrect. Corporate social activity is as diverse as societal expectations. Yet, this is the development of ‘strategic CSR’ that fits best the logic of refocusing from ‘social costs’ to ‘social investments’.

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Our research confirms the traditional adherence of the respondent companies to the ‘responsive CSR’ ideology. Firstly, companies implement various charity and sponsor ship projects ranging from support given to museums in the Russian North (OJSC Severstal) and the Ryazan Paratrooper Academy (TNK ВР) to assistance to children and teenagers with disabilities or deprived of parental care (OJSC TGC 5). Characteristically, federal and regional ‘external’ social programmes are not viewed by many companies within the confines of ‘pure’ philanthropy, although understanding of the benefit to the business is plainly very general (see insertion 1.7). Some companies, including those of the Renova Group of Companies, strongly support ‘volunteer’ charity activity by their employees. New for Russian business, this practice is not directly linked to corporate strategy, but definitely drives the overall promotion of CSR culture within companies. Secondly, almost all the companies within the primary and processing industrial clusters run ecological safety and environmental programmes intended for mitigation and pre vention of the relevant risks. Insertion 1.7 ‘We help promote a favourable social climate in the country as a whole and in the regions of our opera tion in particular. And this is all beneficial for the business. So, when they say it's charity we don't quite agree, because charity can be of various kinds and we strongly link it to our interests’.

Peter Neev, Director for Social Investments, OJSC TNK BP Management Source: Russian Managers Association, 2008.

Leading Russian companies are actively mastering ‘strategic CSR’. For instance, Rosneft Oil Company goes beyond active participation in the social development of regions to covering a significant slice of the population – its employees and their families – by various social projects from mortgages to spa resort treatment. Furthermore, Rosneft is co financing together with the municipal authorities a housing construction programme and building accompanying gas boiler houses to serve both the company's entities and municipal facilities. TNK ВР looks at environmental issues in the context not so much of remediation of ecological ‘flaws’, as of the introduction of the most advanced technologies under a large ecological upgrade investment programme. Generally, however, the innovative component of ‘strategic CSR’ is still alien to many Russian company managers. Thus a kind of ‘vicious circle’ is created: on the one hand, insufficiency of innovative activity impedes the development of companies and, accordingly, opportunities for corporate social performance, while on the other hand, bringing innovations out of the CSR scope strips them of an additional ethical incentive. There is a risk that the acknowledgement of CSR's link to corporate strategy as well as the choice of CSR ‘approach’ may remain a mere declaration or at best result in stand alone social programmes, successful though they may be. Securing sustain able competitive advantages by a company hinges immediately on its capability to create, develop and match in a unique way relevant resources, including organisa tional ones. Successful development of corporate social performance requires, respectively, integration of CSR into the corporate governance system, organizing the process of corporate social responsiveness and tracking the outcomes.

1.3. CSR IN THE CORPORATE GOVERNANCE SYSTEM A key to building an efficient corporate social performance system is an advanced corporate governance system with a reasonable, well thought out and consistent distribution of the relevant powers and competences between the owners, boards of directors and senior management. As our research shows, all major corporate gover nance actors of the respondent companies are much engaged in the formulation and adoption of decisions on the introduction of new forms of CSR and in making appro priate arrangements (see chart 1.3). Nevertheless, this distribution gives an insight

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into some important matters reflecting both common corporate governance trends in Russia and increasingly the strategic nature of CSR.

Corporate governance actors who authorise new forms of CSR and CSR activity, % Board of directors

64 61

Management (CEO) Major shareholders General shareholders' meeting

Chart 1.3

Insertion 1.8 ‘A lot depends on the vision, ethics, integrity and strategy of the company's leader, because he does not just ‘do business’ but rather lives it through’.

Marina Mikhailova, Director of the Department of Social Policy and Non Financial Reporting, Renova Management AG, Renova Group of Companies

32 15

Owners (major shareholders and general meeting) take principal decisions on the development of socially responsible business in 32% and 15% of the respondent companies respectively. It is of note that in discussing CSR issues owners theoretical ly have a two fold motivation:

‘Our social programmes are related first and fore most to the shareholders' position, not necessarily to the company's business strategy, but to the moral position of the shareholders, who believe the com pany should not automatically stick solely to its busi ness interests, although nobody is ruling that out’.

Peter Neev, Director for Social Investments, OJSC TNK BP Management Source: Russian Managers Association, 2008.

On the one hand, non financial risks and actions by some stakeholders may harm the company beyond remedy or lead to its downfall. Given that, shareholders must put up with substantial expenses to offset the adversities of the business environment. On the other hand, while in the short run CSR actions may reduce the company's profitability and the dividends payable, in the long run they help push up the compa ny's shares and capitalisation. It is due to this that owners take deliberately positive decisions in favour of CSR, especially in its ‘strategic’ version. However, today’s Russian realities are far more complex than any such assumptions. It suffices to stress that the insider control model prevails among the respondent companies. The role of blockholder owners is played by one or, more often, a few major private owners or the government however represented. Large institutional shareholders are more the exception than the rule. Therefore, the leading sharehold ers have more influence on shaping the company’s overall attitude to CSR and the choice of directions for corporate social activity. For large private shareholders, such influence is dependent upon their personal understanding of the nature of CSR and its link to corporate strategy (see insertion 1.8). Thus, on the one hand, we see examples of ‘responsible leaders’ with CSR prin ciples being their personal conviction who can instill these principles into the compa ny's corporate strategy and daily managerial practice, and on the other hand, a con siderable number of leading companies are still characterised by their shareholders' ‘moral choice’, particularly concerning charity programme priorities, contradicting the company's ‘business interests’. For publicly controlled corporations things are much simpler. Whilst the corporations' ‘public nature’ dictates that the principal directions for their social programmes should correspond to such national priority projects as ‘Affordable and comfortable housing for Russian citizens’, ‘Education’ and ‘Health’, their ‘business form’ requires the corporations to treat such programmes as investments (see insertion 1.9).

Insertion 1.9 ‘We feel responsible to society, and this is detailed in our strategy. Rosneft is an efficient business, but we look after our shareholders' interests. Presently, our main shareholder is the state. So we have a vested interest in keeping our main shareholder happy’.

Pavel Pletnev, Head of the Corporate Culture Department, Rosneft Oil Company Source: Russian Managers Association, 2008.

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Integrating CSR Principles into Corporate Strategy

Insertion 1.10 ‘Understanding of CSR as principles of activity is set out in our corporate code of conduct. Now we have come to the point of stating the related approaches and positions in our corporate standards to be pro moted by Renova as shareholder in its businesses’.

Marina Mikhailova, Director of the Department of Social Policy and Non Financial Reporting, Renova Management AG, Renova Group of Companies Source: Russian Managers Association, 2008.

Insertion 1.11 Interviews with 31 FTSE 100 companies across 20 sectors conducted by Ernst&Young, demonstrated a significant degree of engagement with CR in the corporate governance system: – An overwhelming 94% of companies had set up a structured process to identify and update the board on the most relevant CR issues; – 71% the companies interviewed had a board member with responsibility for championing CR.

Source: Corporate responsibility governance: Getting beyond the structures. Ernst and Young (CIS) Ltd., 2008. P. 2 3.

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The board of directors takes CSR related decisions in 64% of the respondent compa nies. The broad range of these decisions, whose individuality and scope derive straight from the company's dominant interpretation of CSR, comprises, above all: adopting documents stating the corporate strategy for corporate social performance; approving social policy; ratifying the CSR and social investment budget; approving social reporting policy and standards. The companies covered in this report use various documents to state their CSR strategy (see chart 1.4). Characteristically, the most popular of such documents is the col lective agreement (58% of respondent companies), which tallies with the aforemen tioned popular interpretation of CSR strategy as an HR strategy. Yet, aggregately, there is a large share of corporate codes of conduct (29%), ethical codes (22%) and, behind the ‘other’ option (12%), articles of association, charters, corporate standards and socio economic development concepts. These ‘aggregate’ 63% plainly indicate the understanding by boards of directors of the role CSR principles play in the development of corporate social activity, although this figure alone does not testify to the development of such activity as an integral system. Contrastingly, 12% of the respondent companies do not have any such documents at all, while detailed regula tion integrated into managerial routines is, or is planned to be, in place only with a few leader companies (see insertion 1.10). Chart 1.4

Documents which enact a company’s corporate social responsibility strategy, % Collective agreement

Corporate code of conduct

Ethical code

Specific document approved by CEO

No specific document

Other

Apart from the number and scope of the decisions made, another important sign of the board of directors' role is the presence of special committees and board mem bers, usually independent, supervising CSR issues on an ongoing basis (see insertion 1.11). As our research findings show, the respondent companies so far lack any designated CSR committees, with their agenda being addressed by strategic develop ment, corporate governance or HR committees. This indicates a scattering of respon sibility, a token of the relatively low degree of CSR integration into the corporate governance system. Yet, many companies have already started to think about setting up relevant committees. Leader companies are busy debating the possibility of adding independent directors to their boards, prompted, inter alia, by the introduction of a special section ‘Corporate governance, liabilities and interaction with stakeholders’ in a new generation of international sustainability reporting guidelines GRI – G3.

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And finally, senior management authorises the introduction of new forms of CSR and actions in 61% of the respondent companies. This corporate governance actor super vises implementation of the approved CSR strategy, and in 21% of the companies covered by this report, senior management enacts documents stating such a strate gy. That said, as our research shows, everyday decisions relating to corporate social performance are delegated predominantly to specific functional departments. Thus, it is these departments that in fact bear most of the burden of organisational support for corporate social activity.

1.4. ORGANIZING CSR: THE MANAGERIAL PERSPECTIVE Given the relatively underdeveloped corporate governance system in Russia, the clearest understanding of the organisational support for corporate social performance is given by the analysis of exactly which departments of the surveyed companies are directly responsible for implementing CSR strategies (see chart 1.5). Echoing the global trend, provision of organisational resource for CSR is progressively taking on the characteristics of ‘organisational learning’. This can be seen in the consecutive development of the entire CSR management system in a company and accumulation of the relevant knowledge and competences. Referring to the popular model of S. Zadek, five stages of such ‘organisational learning’ can be singled out (see table 1.3). The companies covered in the report are vigorously maturing into the strategic stage of ‘organisational learning’: they are creating vice presidencies for their CSR and sus tainable development agendas; they are setting up cross functional steering groups; they are documenting and regulating corporate social activity and integrating it into their managerial routines; they are publishing corporate social reports.

Chart 1.5

Departments entrusted with implementing CSR strategy, %

HR department

59 39

All departments within their functions

PR department 14

Environmental department

Social development department Special cross functional workgroups

Marketing department

CSR department IR department

5 3

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Table 1.3

The Five Stages of CSR Organisational Learning Stage

What organisations do

Why they do it

Defensive

Deny practices, outcomes, or responsibilities

To defend against attacks on their reputation that in the short term could affect sales, recruitment, productivity and the brand

Compliance

Adopt a policy based compliance approach as a cost of doing business

To mitigate the erosion of economic value in the medium term because of ongoing reputation and litigation risks

Managerial

Embed the societal issue in their core management processes

To mitigate the erosion of economic value in the medium term and to achieve longer term gains by integrating responsible business practices into their daily operations

Strategic

Integrate the societal issue into their core business strategies

To enhance economic value in the long term and to gain first mover advantage by aligning strategy and process innovations with the societal issue

Civil

Promote broad industry participation in corporate responsibility

To enhance long term economic value by overcoming any first mover disadvantages and to realise gains through collective action

Source: Zadek S. The Path to Corporate Responsibility // Harvard Business Review. December 2004. P. 127.

Above all, the research reveals a material divergence in the designation of depart ments with direct responsibility for CSR strategy implementation. Firstly, the traditionally wide share of PR departments (38%) persists. This is a distinct characteristic of the first stages of CSR ‘organisational learning’: ‘Defensive’ and ‘Compliance’. Secondly, CSR is actively integrated into the performances of the main functional services. Definite leadership belongs to HR departments (59%). The sample surveyed also points at marketing (6%) and IR departments (3%), which indirectly illustrates the priority of building socially responsible relationship with specific stakeholders. Thirdly, 39% (!) of the companies report their CSR strategy implementation to be accounted for by every department within its functions. This can be construed as the prevalence of the ‘managerial’ stage in such companies. However, there is no infor mation on departmental regulations to substantiate this. Fourthly, there is a wide representation of companies with designated social develop ment (12%) and environmental (14%) departments. Having these departments is a sign, at least, of a strategic approach to fulfilling CSR, though interpreted in the respective ‘narrow’ way. Fifthly, departments corresponding to the ‘strategic’ and ‘civil’ stages of ‘organisa tional learning’ are scarce: a specific coordinating CSR department is to be found in as few as 5% of the companies, and specially created cross functional groups in 7%. A certain unsystematic note in the ‘organisational learning’ is also affirmed by the study of the link between the choice of departments in charge of implementing CSR strategy and the declared goal of such strategy (see table 1.4).

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Table 1.4

Choice of department entrusted with implementing CSR strategy as a function of the declared goal of such strategy, % Goal Mitigating risk of damage to stakehol ders in the short term

Department

Maintaining reputation in the medium term

Gaining long term competi tive advantages

Other

CSR department

HR department

Social development department

PR department

Marketing department

Environmental department

IR department

All departments within their functions

Special cross functional workgroups

Other

Total

100

Note: Data is given as a percentage of the respondents who answered the question. Source: Russian Managers Association, 2008.

Firstly, in the vast majority of cases the choice of department entrusted with imple menting CSR strategy is effectively independent of the declared goal of implementing such strategy. This can be attributed either to multitasking by the departments concerned, or to the lack of clear vision in setting strategic goals, which is likely where the CSR agenda is addressed by ‘all departments’ (26%, 19% and 20% by the specified goals respectively). Secondly, gaining long term competitive advantages is barely linked to the creation of a single co ordinating department (3%) and specially created cross functional groups (4%), but is associated with HR departments in 30% of cases. This can be explained by the prevalence of the functional approach to CSR assuming the possibility of gaining long term competitive advantages in HR, marketing, etc. Thirdly, PR departments' positions are hardly affected by the variation of ‘goal setting’ in the CSR strategy. These departments hold 17% in the case of short term risk miti gation, 21% in the case of medium term reputation care and 19% when reaching for long term competitive advantages. As for the companies' pertinence to a particular sectoral cluster, this has a limited influence on the choice of departments entrusted with implementing CSR strategy (see table 1.5). On the one hand, however, primary sector companies more often set up desig nated social development (8 out of 12) and environmental (8 out of 13) departments and rarely lay the relevant functions on the marketing department. This matches their greater involvement in regional development and greater environmental impact, as well as the nature of their output. On the other hand, there is very little sectoral differentiation in setting up CSR departments or special cross functional groups and particularly in spreading this responsibility across all departments of a company.

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Table 1.5

Departments entrusted with implementing CSR strategy, by sector Sector of economy Department

Primary sector

Processing sector

Services sector

CSR department

HR department

Social development department

PR department

Marketing department

Environmental department

IR department

All departments within their functions

Special cross functional workgroups

Other

Note: The table shows absolute frequencies. Source: Russian Managers Association, 2008.

Another facet of CSR ‘organisational learning’, as obvious as it is ambiguous, is the respondent companies' attitude to social (non financial) reporting. True, representatives of many companies argue that making such reports can substantially enrich a company's strategy within the categories and ‘spirit’ of CSR. Yet it is often not the systemic and strategic function that the social reports fulfil, but the PR one. Furthermore the report's format reflects or, at least, should reflect, the relevant company's understanding of CSR. Evidently, reports on charity programmes perfectly fit the understanding of CSR as charity activity, but can hardly be deemed as a strategic management tool. Non financial reporting has been developing in Russia since 2000, but has only become accepted by socially responsible companies in the last three or four years. These are mainly primary and processing sector corporations, with leaders distinctly being com panies from the oil, gas and petrochemical industries, the power industry, and also metallurgy and mining. At the time of this research, non financial reports had been published by 62% of the respondent companies. Prevailing forms are social and sustainable development reports. Characteristically, 22% plan to make non financial reports in the near future and just 16% show no interest in them (see chart 1.6).

Publication of periodic non financial reports, % 62

Yes No, but plan to start soon No

Chart 1.6

22 16

Note: Data is given as a percentage of the respondents who answered the question. Source: Russian Managers Association, 2008.

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Although apparently popular, non financial reports are still treated dubiously. The matter becomes particularly acute when the problem of applying the relevant stan dards is considered (see chart 1.7). Chart 1.7

Standards and principles governing periodic non financial reporting, % 48

Free format International standards (GRI – G3, AccountAbility 1000 SES and AS, etc.)

‘In our opinion, Russian standards may be of interest for those companies that operate domestically and do not target international markets. We, however, are a global business and are thus obliged to abide first and foremost by global rules and standards, at the same time paying due regard to Russian standards’.

Source: Russian Managers Association, 2008.

UN Global Compact principles

Insertion 1.12

Igor Beketov, Head of Corporate Communications, OJSC LUKOIL, General Director of the LUKOIL Charity Fund

National standards

On the one hand, 32% of the respondent companies definitely regard international stan dards as an attribute of corporate social activity, particularly when entering internation al markets (see insertion 1.12). For 82% of such companies, this is a logical extension of their experience with international financial reporting standards (see table 1.6). However, as 89% of the companies surveyed may be categorised as large, social reporting based on international standards thus covers less than 1/3 of their total number. This is certainly below the average ratio of 50 60% in the developed economies, but roughly matches the proportion of big corporate names which produce social reports in Brazil, SAR, South Korea and Mexico, countries advanced in this respect. On the other hand, most companies (48%) make non financial reporting ‘in free format’. Some of them feel ‘unready’ to comply with international standards, while others refuse to accept them in principle, regarding them as a kind of ‘Procrustean bed’ which all too often ignores the realities of a particular business and furthermore involves significant expenditure (see insertion 1.13). It is plain to see, though, that the problem of using ‘expensive auditors’ can be resolved by engaging non governmental expert organisations trusted by the Russian business community. Table 1.6

Periodic non financial reporting as a function of annual financial reporting in accordance with international standards, % Annual financial reporting under international standards Periodic non financial reporting

Yes

No, but plan to start soon

Total

Yes

Total

100

Note: Data is given as a percentage of the respondents who answered the question. Source: Russian Managers Association, 2008.

Insertion 1.13 ‘Any standard, unless developed by TNK ВР, is unacceptable for us, because this is an alien stan dard… These are formulae and models that other people have devised in other circumstances. We always consider such standards, study them, but adopting and declaring them as our reporting stan dards is not what we believe is good for us. Furthermore, once you start to follow those stan dards, you become immersed in a multitude of rela tionships with various expert, analytical and consult ing firms, all of which ask for money’.

Peter Neev, Director for Social Investments, OJSC TNK BP Management Source: Russian Managers Association, 2008.

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1.5. CORPORATE SOCIAL INVESTMENTS AS AN ELEMENT OF AN EFFICIENT CORPORATE STRATEGY Different approaches to the integration of CSR into corporate strategy, together with inconsistent CSR ‘organisational learning’ by the respondent companies, determine the specifics both of targeting corporate social investments and of approaches to appraising their efficiency. Typically, a company's overall orientation to ‘strategic CSR’, unless realised through appropriate organisational mechanisms, is not in itself a sufficient condition for using ‘strategic’ criteria. As for ‘responsive CSR’, not only does it persistently ‘force its way’, but it also exerts ‘ideological’ influence upon the entire decision making process. Accordingly, our analysis reveals a notable diversity in the selection criteria for targeting social investments (see chart 1.8).

Insertion 1.14 ‘Take, for example, the Tchaikovsky Symphony Orchestra. …We gave them charitable support and continue to do so, we are their general partner. It was thanks to us that they didn't fall apart and are now up on their feet. So is that investment? I really don't know’.

Igor Beketov, Head of Corporate Communications, OJSC LUKOIL, General Director of the LUKOIL Charity Fund Source: Russian Managers Association, 2008.

Chart 1.8

Selection criteria for targeting corporate social investments (programmes), % 90

Consistency with the long term strategy 71

Acuteness of a specific social issue High risks for the company Management's moral preferences

23 19

‘Consistency with long term strategy, inherent to the very notion of investment, was mentioned as a selection criterion for targeting social programmes by 90% of the respondent companies. In parallel, 71% (!) of the responses pointed at the ‘acuteness of a specific social issue’, which was the main driving force behind charity and sponsorship projects. Furthermore, what has already been labelled in this report as an ‘imaginary’ dilemma of choosing between CSR and efficient business performance lies implicitly behind the choice of ‘management's moral preferences’ (19%) as something if not opposing long term strategies, then at least disengaged from the company's quest for competitive advantages. The study of the correlation between the choices of criteria and declared goals of CSR strategies also reveals the lack of any clear approach on the part of most of the respondent companies (see table 1.7). For instance, achieving long term competitive advantages was the most typical goal across all (!) the selection crite ria, including ‘acuteness of a specific social issue’. This suggests that even charity projects were often viewed from the perspective of achieving a long term social effect, which, in turn, has a long term impact on the company's reputation. Yet the very treatment of charity programmes as ‘investments’ is still questionable (see insertion 1.14).

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Table 1.7

Selection criteria for targeting corporate social investments (programmes) as function of the goals of CSR strategies, % Selection criteria for targeting corporate social investments High risks for the company

Management's Other moral preferences

Goal

Consistency with long term strategy

Acuteness of a specific social issue

Risk mitigation

Reputation care

Gaining long term competitive 44 advantages

Other

Total

100

Note: Data is given as a percentage of the respondents who answered the question. Source: Russian Managers Association, 2008.

It is also clear that the investment approach to corporate social programmes requires a corresponding efficiency appraisal. Despite the ‘strategies’ and ‘investments’ rhetoric, such appraisal was only carried out by 56% of the respondent companies (see chart 1.9), with 17% carrying out no efficiency appraisal at all despite regarding social programmes as investments. Chart 1.9

Appraisal of corporate social investment efficiency, %

Yes

56 17

Note: Data is given as a percentage of the respondents surveyed. Source: Russian Managers Association, 2008.

This, however, is not as much indicative of the companies' reluctance to carry out such appraisals, as it is of the objective complexity of doing so. Furthermore, the lead ing companies have a reasonable grasp of the problem at hand and the possible ways to tackle it. On the one hand, there is evidence of a shift from attempts to appraise individual projects to the formulation of integral indicators. On the other hand, the

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return on social investments is increasingly seen as a sustainable and mutually bene ficial relationship with the stakeholders, which, in turn, becomes a crucial and unique resource (see insertion 1.15).

Insertion 1.15 â&#x20AC;&#x2DC;We do not have any clear link between social investments and income, nor any special means of calculating their economic efficacy. What mat ters for us are constructive relationships with our counterparties and stakeholders, i.e. the meaningful outcome of social investments. First priori ty is given to actions which support the company's developmental goals, and which are aligned with our stakeholders' interests. There are plenty of quantitative assessments of the efficacy of social investments, but they are unlikely to be reliable. I attach greater importance to qualitative criteria, such as whether the company has had any strikes, and what kind of rapport the staff has with the administration. If the rap port is bad, then why, if good, then thanks to what actions of the shareholders and management can this be attributed. Are the local communi ties satisfied with the company's environmental performance? Of course, these and other qualitative criteria need to be determined and further work is required to give them credibility and to develop a system for their applicationâ&#x20AC;&#x2122;.

Alexander Bim, Advisor to General Director, OJSC SUEK Source: Russian Managers Association, 2008.

And finally, 52% of the respondent companies used their own criteria to assess the efficiency of their social investments (see chart 1.10). Such criteria had been main ly developed through a system of contests with strict control over the achievements of entire projects and their intermediate stages (see insertion 1.16).

Chart 1.10

Criteria used by companies to appraise the efficiency of corporate social investment, %

In house criteria

Criteria per international non financial reporting

40 52

8 Both

Note: Data is given as percentage of the respondents who answered the question. Source: Russian Managers Association, 2008.

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Insertion 1.16 ‘…Where the company is active, we arrange social project ‘contests’ under multiple categories, such as health care, charity, sport. This year we have a new category dedicated to the Year of Family. A contest committee collects applications, appraises them, and the best ones receive a grant to implement the project. Throughout the year they carry out the project, then report back to us. When the year ends, a new contest begins’.

Igor Beketov, Head of Corporate Communications, OJSC LUKOIL, General Director of the LUKOIL Charity Fund Source: Russian Managers Association, 2008.

*** In summary, a review of leading domestic company practices shows that the develop ment of CSR in Russian businesses is generally in line with the global trend of CSR principles being integrated into corporate strategy, with a shift towards the ideology of social investments matching the long term interests of both society and the business. However: The dissemination of ‘best practices’ and formulation of common approaches to the promotion of corporate social investments are held back largely by the lack of a universal understanding of the meaning of CSR and by the lack of a systemic approach to implementing innovative corporate social performance. The widely announced integration of CSR principles into corporate strategy is not always backed up by systemic efforts to introduce CSR into the corporate gover nance system and to build up the appropriate organisational support. Social investments have not yet become a systemic, balanced activity which facili tates the achievement of sustainable competitive advantages.

Strategy of Business's Interaction with Stakeholders

C H A P T E R

2.1. ‘Internal’ and ‘External’ Stakeholders: Means of Interaction 2.2. Impact of Shareholders and Investors on the Formation of CSR Strategy 2.3. Business Government Interaction 2.4. Employees in the Social Investment System 2.5. Educational and Scientific Institutions in their Interaction with Business 2.6. Local Communities: Prospects for Partnership 2.7. Consumers as Recipients of Social Investments

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Chapter 2. Strategy of Business's Interaction with Stakeholders

either proper decision making with regard to corporate social invest ments nor the development of a balanced system of corporate social investments as an element of an effective corporate strategy is possible without interaction of the company with its stakeholders. It is through the stakeholders' ‘voices’ that society formulates its occasionally con tradictory expectations of corporate social performance. It is through ongoing dia logue with stakeholders that decisions are coordinated with their recipients and the outcomes of specific social programmes and projects gain comprehensive, multilateral appraisal. Importantly, not only does this dialogue result in social investments which allow specific social issues to be tackled and business risks to be mitigated. It also serves as a basis for building a sustainable, mutually beneficial relationship which, if given appropriate organisational support, becomes a unique resource in itself capa ble of providing the company with both medium and long term competitive advan tages. As noted in a recent research paper by the European Academy of Business in Society (EABIS), strategic stakeholder management is ‘a platform linking corporate responsibility and strategic management’ enabling the company ‘to strengthen and enhance its resources, capabilities, knowledge and access, relationships, social capital and reputation’.3 In Russia, the history of such relations, which are built while implementing CSR prin ciples, is quite recent, although some elements can be traced back to the pre perestroika period of domestic economy development. Leading Russian companies recognise the significance of interaction with their stakeholders. They are willing to make appropriate use of available theoretical findings as well as the opportunities provided by adapting the best practices of foreign business to the reality of life in Russia. However, the very system of dialogue and coordination of interests are still in the making.

2.1. ‘INTERNAL’ AND ‘EXTERNAL’ STAKEHOLDERS: MEANS OF INTERACTION Each of the companies covered in this report interacts with a wide range of stakehold ers (see major interacting parties outlined in fig. 2.1). Nevertheless, the full potential 3. Lenssen G., Perrini F., Tencati A., Lacy P. Guest editorial // Corporate Governance: The international journal of business and society. 2007 Vol. 7. N 4. P. 352.

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of this interaction so far remains ignored, with the key stakeholder positions being held by the government, company employees and local communities. The range of actively interacting parties is gradually becoming more diverse; however, their CSR positions are as yet barely defined. Leading Russian companies are gaining a sys temic vision of the case for social investments oriented to the entire ‘spectrum’ of the parties involved with their business interests (see insertion 2.1). On the whole, how ever, Russian business as represented by its management is normally concerned with identifying priority parties’ interests and their relevance as significant competitiveness drivers. This is particularly apparent in global markets or where a company has a heavy social burden due to the specific characteristics of its area of operation. That said, sustainable stakeholder interaction mechanisms in most companies are at an early stage of development, the interaction itself being generally of a one way donor recipient kind. Figure 2.1

Interaction of business with major stakeholders Suppliers, business partners

Consumers

Government (bodies interacting with the business community on CSR issues)

Competitors Employees (trade unions) Specialised international organisations and initiatives (ILO, GRI, UN GC, etc.)

Department in charge of or entrusted with CSR The media Shareholders and investors

NGOs Educational and scientific institutions, religious, cultural and sports organisations (social interest groups)

Local communities: regional authorities, local authorities, population in areas of operation

The respondent companies show certain degrees of ‘attention’ to, and build certain systems of communication with, particular stakeholders depending on many factors. First and foremost, this is the positioning of the very stakeholders as ‘external’ and ‘internal’ with respect to the company. In addition, without being social investment tar gets, shareholders and investors together with the government as represented by spe cific regulatory bodies play an essential role in making decisions on the development of the entire system of relevant interactions. A company's choice of priority stakeholders

Insertion 2.1 ‘Corporate social responsibility in a broad sense, as we see it, is the fullest regard for stakeholders' interests as permitted by the company's interests and objectives. What the company's sustainable performance hinges on are good and productive relations with its stakeholders. We believe dialogue should be carried on and additional efforts made for our major counterparties to be aware of the current and long term benefits the company's per formance brings in the widest range of areas.’

Alexander Bim, Advisor to the General Director, OJSC SUEK. Source: Russian Managers Association, 2008.

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for the dialogue is also influenced by its sector, type of ownership and the specifics of its area of operation. Primary sector companies attribute special importance to their relations with local authorities and environmental organisations (although the latter relations are often conflict driven). Enterprises which form company towns do so with respect to establishing effective interaction with the local community represented not only by the authorities, but also by a wide spectrum of non governmental organisations (NGOs) and social interest groups. Public companies, accordingly, build priority rela tions with the government as their major shareholder. Among the means of communication with ‘external’ stakeholders (see chart 2.1), business expressly prefers exchange of views by way of round tables and seminars, and also one way communication through media publications and corporate web sites. Various forms of multilateral interaction and joint initiatives are mentioned, on average, three times as rarely. Insertion 2.2 ‘It is utterly important to recognise that the development prospects of business and the economy are currently shifting towards the knowledge economy. This, in turn, is nothing other than the economy of stakeholders, who possess the intellectual capital. Social reporting is an essential step towards creating a system of non financial reporting that allows stakeholder relations to be nor malised and made transparent. It is not by chance that the latest western research data suggests that the quali ty of social reporting influences the efficiency of corpo rate management and is regarded as a new indicator of investment appeal.’

Irina Ivashkovskaya, PhD in Economics, professor, the Head of Corporate Finance and Economics of the Firm Department and Corporate Finance Center of SU HSE, expert of the World Bank Institute Source: http://www.rsraward.ru/04arhiv.htm

Chart 2.1

Communication mechanisms for ‘external’ stakeholders, %

Participation in conferences, ‘round tables’ and seminars

Appearances and publications in the media

Corporate web site Joint expert work

Involvement in civil examinations and public hearings

Cooperation with public chambers

Organising social project fairs

Other

At the same time, the ‘other’ initiatives include dialogues with those affected by the company's activities, primarily as part of preparation of a new social report (see insertion 2.2). There are quite a few examples of establishing permanent ‘feedback’ channels and meetings of management representatives with the parties interested in developing social investments. The most common motivation by a large margin when choosing means of external communication, regardless of which form of communication is chosen, is the prospect of ‘gaining long term competitive advantages’. However, ‘reputation main tenance’ and ‘risk mitigation’ are also seen by businesses as strong drivers for the development of various forms of external communication (see table 2.1).

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Table 2.1

Means of external communication for achieving various CSR goals, %

Other

Appearances and publications in the media

Corporate website

Organising social project fairs

Involvement in civil examinations and public hearings

Joint expert work

Participation in conferences, ‘round tables’, seminars

Goal

Cooperation with public chambers

Means of external communication

Risk mitigation

Reputation maintenance

Gaining long term competitive advantages

Other

Total

100

Note: Data is given as percentage of the respondents who answered the question. Source: Russian Managers Association, 2008.

A clear trend amongst the respondent companies towards improving and varying how they implement dialogue can be seen, from renewable partnership agreements with regional and local authorities to the appraisal of social project performance as a con dition of providing further financial support. These means of dialogue have a growing impact on social investment decision making (see insertion 2.3). That said, the research shows that the achievement of ‘long term competitive advantages, the key reason for promoting interaction with the stakeholders, is sought by businesses through ‘round tables’ (44%), public chambers (43%), social project fairs (38%), pub lic hearings and civil investigations (38%). No lesser importance is attributed by the respondent companies to information resources, such as use of a corporate website (45%) and media publications (44%). For ‘reputation maintenance’, preferences are almost equally divided between various forms of interaction, whilst for ‘risk miti gation’, the means of external communication play a lesser role. The respondent companies have either already declared their priorities with regard to stakeholder interaction and how they will implement it in their corporate strategies and reflected this in their social reports, or they are vigorously discussing their social investment options in the context of ‘risk mitigation’ and ‘reputation maintenance’. It can be stated that the leading Russian companies are starting to accept (or have already accepted, at least by declaring intentions and individual initiatives) the con cept of CSR in the broad sense as having the fullest regard for all stakeholders' interests as permitted by the company's interests and objectives. However, most stakeholders can be said to see only a distant prospect of their systemic involvement in the dialogue on the development of corporate social performance.

Insertion 2.3 ‘A socially responsible company declares its position publicly in accordance with how it sees itself in society, which groups it identifies for interaction, and how it fore sees this interaction taking place. The company formu lates the basics, decides how it intends to deal with par ticular groups of stakeholders, … and then in the course of dialogue the needs of each party become apparent. Consequently, the company makes commitments and fulfils them. We are not a charity which gives out money ‘just for something that somebody happens to want’… Our social programmes have been developed and shaped by discussions in the form of public hearings with stakeholders.’

Andrey Buzov, Deputy Director General for Human Resource Management, OJSC OGK 4 Source: Russian Managers Association, 2008.

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2.2. IMPACT OF SHAREHOLDERS AND INVESTORS ON THE FORMATION OF CSR STRATEGY Shareholders' impact on the formation of CSR strategy is determined by their leading role in the corporate governance system. As for international corporate governance practice, there is an increasing conviction that it is the regard for the interests of a wide range of stakeholders, together with a company's executive bodies' accountability to its shareholders, that ‘help improve the confidence of domestic investors, reduce the cost of capital, underpin the good functioning of financial markets, and ultimately induce more stable sources of financing’ (see OECD Principles of Corporate Governance4).

Insertion 2.4 ‘After all, all of us work towards increasing the compa ny's capitalisation, so that the shareholders receive higher dividends. Social reporting contributes to a com pany's international rating, which makes it another tool to boost capitalisation. Everybody looks at it. For instance, having the relevant documents, officially certi fied and audited, in place is a plus when seeking big loans.’

Igor Beketov, Head of Corporate Communications, OJSC LUKOIL, General Director of the LUKOIL Charity Fund Source: Russian Managers Association, 2008.

The impact of socially oriented initiatives and sustainable interaction with those who participate in the initiatives on the company's capitalisation is interpreted by the respondent companies in various ways, both as the incurring of additional expenses and as additional opportunities for entering new markets, primarily foreign ones. There is an emerging recognition that although a company with an advanced CSR practice is more expensive to acquire, this is an asset attractive for the international investment community (see insertion 2.4). Conversely, the problems resulting from playing down corporate social investments (in personnel, the environment etc.) and the relevant interest co ordination mechanisms ‘descend’ to the new owner who would be better off acquiring a company advanced in corporate social activity. Some companies are frank about their preference for the ‘European’ model, which addresses the interests of all stakeholders, to the ‘American’ model, which puts emphasis on the interests of large shareholders. However, they admit that practice is largely shaped by the specifics of the region and relations with the local authorities. At first sight, the already mentioned pivotal role of leading ‘blockholding’ owners gives this preference a certain paradoxical tinge. Nevertheless, it is the ‘responsible leadership’ of large shareholders that becomes key to promoting mutually beneficial interaction with stakeholders and which eventually ensures a company's sustainable development. However, the issue of protecting the rights and interests of minority shareholders and their impact on CSR strategy is beyond the scope of this discussion. Anyway, it is the shareholders' position that is conclusive in selecting and approving the directions and scale of corporate social investments. Where acting as the owner, the government directly influences the corporate choice. At the same time, acting through specific regulators, the government shapes the entire system of relations between business and society as represented by a complex and contradictory network of stakeholders.

4. http://www.oecd.org/DATAOECD/32/18/31557724.pdf

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2.3. BUSINESS GOVERNMENT INTERACTION

Insertion 2.5

The government has a special role among stakeholders. The mode and rules of building a company's relations with the government largely, and sometimes conclusively, affect both the quantitative parameters of corporate social investments and the choice of their priority directions. Ultimately, it is the effectiveness of these relations that controls the extent to which corporate social investments conform to the demands of the business itself and the interests of the country's development. Furthermore, the respondent com panies' management representatives note the need for the government to formulate national development priorities, so that not only business and the government itself, but also the public understand that business works for the benefit of society. Companies' keenness to have material and moral incentives for socially responsible business conduct is explicitly evidenced by the findings of the survey, with the government being called to provide material support for such conduct by representatives of 94% of the respondent companies and to provide moral support by 71% (see chart 2.2). Business is also very eager for the government to encourage corporate social invest ments (see insertion 2.5). The need for such encouragement is overwhelmingly (92%) supported by the respondents and only opposed by 2% (see chart 2.3). Importantly also, the business demand for enhancing the role of the government is not at all unique to Russia but fully conforms to the global trend (see insertion 2.6).

The most efficient governmental incentives for corporate social investments, %

Chart 2.2

Material incentives Moral incentives

Note: Data is given as percentage of the respondents who answered the question. The total of responses exceeds 100% as the respondents could choose as many answers as applicable. Source: Russian Managers Association, 2008.

Chart 2.3

Take up of government incentives for corporate social investments, % Unsure No

6 Yes 92

Note: Data is given as percentage of the respondents who answered the question. Source: Russian Managers Association, 2008.

‘Companies should not appraise themselves. I would only be happy if the government were to develop the tools for independent governmental appraisal, expert evaluation and relevant dialogue with companies, and encourage companies to open up more and demon strate their results. And companies that do this should be acknowledged.’

Peter Neev, Director for Social Investments, OJSC TNK BP Management Source: Russian Managers Association, 2008.

Insertion 2.6 As noted in the report on the international survey con ducted by Grant Thornton in 2008 on a sample of 7,800 companies from 34 countries, whilst corporate responsi bility principles are developed within companies and often fostered by non governmental organisations, national governments have a major role to play. They can set reference frameworks, encourage action and promote dialogue but crucially can enforce action through legislation. Governments can use taxation to encourage ‘green’ practices, set minimum wages and impose restrictions on working hours. In many countries targets are set on businesses to reduce green house emissions. Yet many businesses stress that government incentives, rather than punitive taxes, would do more to encourage ethical behaviour, especially on ‘green’ issues.

Source: Corporate Social Responsibility: a Necessity not a Choice. Grant Thornton IBR, 2008. P.2. http://www.internationalbusinessreport.com/Reports/Foc us_reports/Corporate_Social_Responsibility.asp

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The respondent companies believe such incentives should not imply interference, but rather readiness of the government to share risk, with many rapidly developing com panies stressing the need for national priority focused and initiative driven social investments (see insertion 2.7). In the case of public private social initiatives, the partnership mechanism is to be formalised in specific agreements to ensure the required transparency.

Insertion 2.7 ‘The government should act transparently in establishing national developmental priorities that a business can endorse or use as guidance when coming up with its own initiatives. The government must share the risks related to new initiatives with the business. Such innova tive activities by companies to be encouraged by the government.’

Most respondents (76%) feel that social investments by business partly substitute governmental social expenditures (see chart 2.4). Given the still unforgotten pre perestroika role of the government, such a position is quite understandable. However, by far not all companies consider such substitution not even slightly legi timate, even if taking account of the change in socio economic realities. As worded by one of the respondents: ‘Why should we do this while the government is flooded with money? There are different businesses and different companies, and not all of them should be treated equally.’ In fact, the already traditional notion of the forcible nature of corporate social programmes as ‘substitutes’ for public expenditure conflicts with the popularisation of CSR as a source of long term competitive advantages. Chart 2.4

Corporate social programmes as a partial substitute for public social expenditures, %

Veronika Kabalina, Head of Social Programmes Department, OJSC MMC Norilsk Nickel

Unsure

Source: Russian Managers Association, 2008.

No 16

8 Yes 76

Note: Data is given as percentage of the respondents who answered the question. Source: Russian Managers Association, 2008.

However, some respondents are less concerned with the forced character of CSR as they are with the government's lack of clearly formulated approaches. The strongest censure is roused by the practice of wringing money out of business for particular plans and projects, and the ‘consumer attitude’ towards locally operat ing companies. The respondents also stress significant differences in the beha viour of regional and local authorities. Nevertheless, the respondent companies generally have faith in the positive trends of public private partnership (see insertion 2.8). Multilateral dialogues and public hearings as practised by some companies have evolved as a meaningful form of interaction facilitating discussion and resolution of the many issues which arise out of a company's performance and which affect

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the interests both of the authorities and of the public. A widely used system of contractual relationships with regional and municipal authorities involves nearly all large corporations. This is actually one of the major forms of public private partnership. As the forms of social investment and CSR related public private interaction become more diverse, it is an increasingly pressing task to build well ordered relations between the parties and their systemic vision (see insertion 2.9). Delimitation of responsibility of the government and business is still an open issue. These tasks could be better addressed with help from the Public Chamber and its commissions and workgroups which have been uniting the efforts of busi ness, trade unions, civil society organisations and also respective regional enti ties for a number of years.

Insertion 2.8 ‘The government's attitude to CSR and social invest ments is now changing for the better, and this is encouraging. However, not only the attitude to corporate social responsibility but also the attitude to business in general must change. If society and the government perceive business as the national economy cornerstone working for the benefit of the country and its develop ment, then business will indeed feel quite confident.’

Igor Beketov, Head of Corporate Communications, OJSC LUKOIL, General Director of the LUKOIL Charity Fund Source: Russian Managers Association, 2008.

2.4. EMPLOYEES IN THE SOCIAL INVESTMENT SYSTEM Company employees are the key stakeholders whose development receives the lion's share of social investments. According to the research data, the share of expenses for HR development and health & safety averages 46.7% and 15.6% respectively (see Appendix 3). Moreover, as already noted herein, it is HR departments that are most often responsible for implementing CSR strategy. Seeing personnel as the most important stakeholder is not, however, a purely Russian phenomenon either (see insertion 2.10). There are a number of reasons for the particular importance attached by companies to relations with their staff as the priority recipients of social investments. These reasons are ranked by the respondents in the following descending order of impor tance: 1) increasing role of human capital and its quality for successful economic perform ance and increasing competitiveness; 2) efforts by management and owners to prevent escalation of social tension and emergence of conflicts; 3) growing HR competition driven by a worsening demographic situation, a growing deficit in qualified labour and shortfalls in the vocational training of young people. The growing awareness of the role and importance of investment in HR spurs companies' management to move from one off actions to long term interaction. Characteristically, 58% of the respondent companies consider collective agreements as the main documents which state their CSR strategy. As a matter of bilateral rela tions, drafting collective agreements involves trade unions which become engaged in developing and negotiating the CSR strategy and social investment priorities, at least in terms of HR. In turn, staff often become the major target recipient of the social report as well (see insertion 2.11). Nearly all of the companies covered by this report offer their employees a similar package of benefits and services. On top of that, ‘more advanced’ companies,

Insertion 2.9 ‘The government should first define its own social responsibility. We need a clearer understanding of what we are to cover with our efforts, where we are to be of use, and what is taken care of by the government itself. So far, the watershed in certain issues and positions is blurred and there is no clear understanding of the national CSR platform.’

Peter Neev, Director for Social Investments, OJSC TNK BP Management Source: Russian Managers Association, 2008.

Insertion 2.10 The results of the international research ‘CSR: a Necessity not a Choice’ by Grant Thornton show that while ‘saving the planet’ is a concern, by far and away the main drivers for action on corporate social responsi bility are issues of recruitment and retention.

Source: Corporate Social Responsibility: a Necessity not a Choice. Grant Thornton IBR, 2008. P.14. http://www.internationalbusinessreport.com/Reports/Foc us_reports/Corporate_Social_Responsibility.asp

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Insertion 2.11

The role of social report in building relations with SIBUR stakeholders The key problem faced by many domestic companies when making a social report is its elusive purpose. For this reason a social report is often just a status symbol for a large and strong company rather than a working tool. To avoid this, SIBUR specialists intended the report primarily to tackle the problem of building effective internal communications. In other words, they used the report as a PR document addressed to the company's major target group, i.e. its staff: ‘… the authorities know us quite well, we regularly deal with journalists, and investors often just check if a social report is in place as part of the standard package’. Thus, readers from amongst the company's staff were put in the limelight.’ The ranking of target groups by priority dictated the choice of format: interviews with the company's senior executives. Thus, the social report tackled a number of tasks: – informing employees of where the company is, where it is going, what they can count on and what is expected from them in return; – aligning middle and lower management with the strategy and tactics of senior management; – communicating senior management's vision of the global challenges to the company's development as a whole, thus explaining to staff the purpose of the current objectives; Insertion 2.12 All 11 enterprises of OJSC Motovilikha Plants provide their employees with the services of a preventive health care centre at 90% discount. The same applies to a camp for children. The company also owns 6 hostels. Both this company and Permskie Motory provide a social package of a level comparable with that enjoyed by employees of more successful enterprises.

– encouraging dialogue at the top and other levels of management; – familiarising the public at large, including investors and regional authorities, with various opinions and statements of senior managers resulting from private discourse with their employees.

Source: T. Dreyling. Mantra or Communication? Social Report: Quest for a New Format // HR Management. 2008. N6.

Source: S. P. Peregudov, I. S. Semenenko Corporate citizenship: concepts, global practice and Russian realities. M, Progress – Tradition, 2008, pp. 349 351.

particularly those which are multi located, tend more to personalise the benefits so that each employee bears personal responsibility for the social investments provided and so that staff become more responsible for themselves. However, a more typical situation is where a company develops its corporate benefit programme in accordance with its employees' wishes. This involves a period of consultation and drawing up a list of costs based on the results. This way, enterprises succeed not only in staying afloat by securing their business survival, but also in improving their professional and technological base (see insertion 2.12). In other words, the issue of socially responsible behaviour towards staff is even more acute for the majority of companies than for industry leaders. This acuteness, however, illustrates the companies' focus on short term risk mitigation rather than on gaining long term competitive advantages. The respondent companies' efforts to ensure the general development of a CSR cul ture as a key component of corporate culture are gaining increasing significance in the companies' corporate social performance. Apart from the attention paid to health, leisure and sport, particular interest in volunteer charity work and the encouragement of individual giving to charity is shown. In some companies, such initiatives involve not only office staff, but increasingly production workers. This includes patronage in orphanages and kindergartens, retirement homes and other areas of social work that palpably improve the quality of life of the needy. In fact, this is the beginning of an expansion of the social investment field.

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2.5. EDUCATIONAL AND SCIENTIFIC INSTITUTIONS IN THEIR INTERACTION WITH BUSINESS An integral part of corporate social investments in HR is investments in the education al and professional training system. However, this activity is by its nature one part of a wider interaction of business with educational and scientific institutions. As for companies' educational programmes, as one of the respondents said, ‘our agenda is now topped by issues of forming and developing professional capital’, and that is with respect to all staff categories, from ordinary employees to executives. A very similar message recurs in many interviews, in which support for the most diverse kinds of educational programme is described: from professional development and retraining courses to special educational institutions, including those directly run by companies (such as technical vocational schools) as well as ‘patroned’ schools, technical schools and higher educational institutions. Insertion 2.13

A special place among such initiatives has been recently taken by corporate univer sities intended to train and retrain middle and top professionals, and to ensure they better understand the prospects of the company's development (see insertion 2.13). So far such universities have been established by 64 large corporations; however, if taken with other large corporate educational centres, this number is probably closer to 150.5 In recent years, the development of intercorporate cooperation has become an important feature of the education policy of large Russian businesses. It covers such kinds of educational social investment as supporting educational institutions which provide programmes for managers and multiskilled professionals. For example, a wide group of leading Russian companies promotes the creation of two world class business schools: the St. Petersburg State University's Graduate School of Management and the SKOLKOVO Moscow School of Management. This is done under the Priority National Project ‘Education’. Endowments are increasingly seen as a promising form of funding. Russian business is gradually joining the system of awarding grants to successful Russian scientists. This is most notably exemplified by the national science pro moting foundations set up by some of the top tier businessmen (such as the Dynasty Foundation for non commercial programmes of Dmitry Zimin, founder and Honorary President of VympelCom, and others). Basic Element has announced, jointly with the Russian Academy of Sciences, a project to establish a scientific and technical centre intended to parallel, in a way, the US Massachusetts Institute of Technology. The main purpose of this centre is to introduce the latest scientific developments at more than 80 enterprises of the holding company and promote its own venture projects. In the light of the Russian economy's realignment towards innovative development, corporate investments in science and research assume greater importance. This

5. See M. Malykhin. Corporate University. Turning the Costs of Employees Training into Business Investments. // Vedomosti. 2008. N 115.

‘The Corporate University's aim is to assist employees in studying and applying the latest managerial tech niques for solving problems faced by the Company, and to ensure staff understand the Company's development prospects. Our HR training is intended to procure a ‘career lift’ and high professional mobility for the staff. A number of the Corporate University's programmes provide for continuous development of employees who show a high potential and who are willing to play a productive role in the Company's key projects.’

Alexander Bim, Advisor to General Director, OJSC SUEK. Source: Russian Managers Association, 2008.

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can be illustrated by a machinery building engineer and designer training agree ment signed by the State Corporation Rostehnologii on behalf of its 200 subsidiary enterprises and companies with the Russian Rectors' Union which represents 900 national higher educational institutions. Aid from the business community mainly takes the form of grants to students by companies, plants and engineering consul tancies. Generally, however, while investment by Russian companies in staff education and training have shown an evidently positive trend in recent years, their investment in innovation development remains restrained. This ‘innovation apathy’ is at least partly attributed by some specialists to the immaturity of the public private partnership (PPP) system. Hence, innovation development is mostly financed out of the national budget. Many businessmen and analysts put this down to the persisting political risks and lack of solid guarantees of ownership rights. Insertion 2.14 ‘The task of involving as many stakeholders as possible is addressed by holding roundtables and public hearings.’

Pavel Pletnev, Head of the Corporate Culture Department, Rosneft Oil Company. Source: Russian Managers Association, 2008.

Insertion 2.15 Since 2003 OJSC SUEK has been making annual socio economic partnership agreements with regional and municipal authorities to provide support for various social programmes and causes. SUEK To Regions, a non commercial foundation for socio economic support for the regions, has been running since 2007. Its projects include raising funds for housing construction and social infrastructure, assistance for new job creation, introduction of means for motivating and retaining highly qualified employees and recruiting young specialists. The pilot projects are run in Kiselevsk (Kemerovo region), Borodino (Krasnoyarsk territory), Chernogorsk (Republic of Khakassia), Sagan Nur (the Republic of Buryatia) and Chegdomyn (Khabarovsk territory).

Source: Corporate website of OJSC SUEK, http://www.suek.ru/page.php?id 70

2.6. LOCAL COMMUNITIES: PROSPECTS FOR PARTNERSHIP Nearly all of the respondent companies note the importance of working with the local community. Nevertheless, the research unveils significant divergence in the priorities for the selection of partners. Where the interaction is confined to contact with regional (municipal or district) authorities, the local community becomes equated with the local authorities that act as its sole mouthpiece. Involving representatives of the social interest groups represented by NGOs in the dialogue expands not only awareness of the community's interests, but also the variety of methods for interaction; and new forms of multilateral dialogue emerge (see insertion 2.14). However, many companies still prefer to separate their dialogue with authorities from that with other stakeholders when dealing with specific issues. Local communities are not equated with the regional and local authorities by acci dent: their officials are key to the interaction, and annual agreements at the regional (town, district) level, joint work groups and joint local development pro grammes become typical practice for many big companies (see insertion 2.15). Such agreements and programmes set out principal areas and volumes of social facilities funding as well as the means of monitoring and control. Priority targets are chosen both through public hearings, discussions and informal arrange ments. The practice of ‘compulsory social responsibility’ (a sort of ‘civilised bribe’, as put by one of the respondents) is reported to be generally on the wane. As noted by business representatives, the practice of institutionalising relations promotes the formation of a package approach to local development (without excluding selectivity and personal preferences) and is more responsive to compa ny interests. The latter factor plays a role in selecting corporate social investment targets: professional training centres, sports facilities, kindergartens, etc., most of which however belong to the standard high cost social infrastructure. An exception is big business's integrated local development programmes, notably in the case of socially burdened companies (monocities, primary sector), or pro grammes targeting a wide audience (young people, education). The first volun

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teer activity promotion programmes have been launched in the localities of par ticipating companies with one initiative being related to supporting various forms of involvement by young people (such initiatives are promoted by UC RUSAL, for example). Large companies move from stand alone projects to targeted infrastructure pro grammes, while smaller companies opt for one off investments in specific facilities and events. The importance of interaction with the local community is reflected in the social programme funding statistics. In 2007 companies spent on average 14.6% of their social programme budget on supporting local communities (see Appendix 3). This year these figures are expected to stay at approximately the same level (up to 14.1%). As compared to 2003 2004 (9% and 11%, respectively), this sets an upward trend. Businesses use diverse tools to communicate with their stakeholders in the area of their operation: from targeted programmes and social project fairs to local com munity development funds. Stimulation of project thinking as a prerequisite for promoting such initiatives can, according to representatives of the respondent companies, be considered as a tool for the development of a civil society: this prompts people to realise that they can change something with their own hands and minds. In the opinion of the respondent companies' representatives, NGO involvement is impeded by a wide range of factors: their real or alleged weakness, unreadiness for constructive discussion of problems, lack of experience with companies and often lack of information necessary for effective interaction. The media (local and corporate press, TV and internet resources) are still key to forming public attitudes to business initiatives. However, many corporate CSR experts note that the media poorly cover companies' CSR achievements citing the low sales potential of this usually non scan dalous and non sensational material for the publication. Remarkably, confrontational thinking is a factor hindering all potential participants from leaving their controversies behind and moving towards responsibility sharing and co operation. This is most noticeable in companies' relations with the environmental organisations that are most frequently mentioned among those NGOs which fall with in the business community's field of vision. However, the business community is also aware that the NGO sector is in need of all possible support (see insertion 2.16). Business needs NGOs for simple pragmatic reasons (without them, social project implementation may lead to an increased pay roll) and also because they solve many crucial problems, are well positioned to com municate with everybody – the business community, the authorities and society – and they have their own defined mission and capabilities. In any case, business still has the important task of identifying potential partners amongst civil society representatives, and pushing for more such partners in areas

Insertion 2.16 ‘NGO sector support by the business can be viewed as a strategically reasoned and socially meaningful invest ment. Having their own mission, position, strong organi sation, competences and other resources, and interact ing with the business community, authorities and socie ty, non governmental organisations can tackle a great deal of issues in the social sphere. All these make NGOs an advantageous partner for the business in implement ing social programmes. The best effect is achieved through support and co operation with well established, professionally recognised and experienced entities. In turn, such NGOs help the entire non commercial sector and civil society in general to establish and evolve.’

Marina Mikhailova, Director of the Department of Social Policy and Non Financial Reporting, Renova Management AG, Renova Group of Companies Source: Russian Managers Association, 2008.

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which are important for the business itself. In effect this means the need to review activities in various types of social investment, and also expanding and intensifying the dialogue with local community stakeholders.

2.7. CONSUMERS AS RECIPIENTS OF SOCIAL INVESTMENTS Funding of ethical business conduct towards consumers in 2007 drew on average 10.3% of the corporate social programme budget of the committed companies (53) (see Appendix 3). The significance of focused consumer relations occurs first and foremost to com panies haunted by negative pollution related image associations. They have already learnt that Russian consumers also tend to choose (if given the choice) new, more environmentally friendly and cost effective goods and services (new grades of petrol, for instance). Socially responsible consumption is increasingly recognised as the not so remote future for significant segments of the Russian market, with ‘education’ of such consumers coinciding with long term business interests. Russian consumers' preference for national brands in the food sector, for instance, is known to be widely used in marketing strategies. Yet relations are still built in a one way direction – from company to consumer. However, there are now examples of dialogue with a wide circle of stakeholders where feedback is supported. Such relations existed in Perm based NOVOGOR Prikamie (a public utilities company) as reflected in its 2005 and 2006 social & environmental responsibility reports. Consumer rights protection is mentioned as one area of CSR in the context of high quality production but the consumer community is still more of an abstract notion for business rather than a specific recipient of social initiatives. For example, promotion of environmental consciousness, potentially good for business image, is still a one way effort mainly confined to the popularisation of certain initiatives by a company through its non financial reporting. Little use is made of the potential of environmen tal awareness development, whether in marketing strategies, educational projects or local development programmes. Consumer organisations were not mentioned as dialogue parties in the expert interviews for this research. The prospects of promot ing a socially responsible consumption strategy were put by the respondents into a broader context of desires for change in the perception of business by Russian soci ety and the establishment of a more favourable and more friendly social environment for business. As shown by the research, consumer relations are not generally considered by the respondent companies to be a priority for corporate social activity. Indeed innovation by companies and their development of new technologies and products are ousted to the margins of, if not fully removed from, the scope of their social responsibility. Even the now popular ‘socially responsible marketing’ is seen as a specific marketing technology rather than an element of the CSR system. In other words, despite the

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growing interest in CSR and its strategic capacity, the leading Russian companies usually fail to build their system of corporate social activity from the basis of ‘econom ic responsibility’ which implies the satisfaction of consumers' needs for goods and services as a fundamental source of profit. *** As shown by the analysis, the formulation of a strategy for the sustainable interaction of the Russian business community with its stakeholders is at an early stage, although the leading companies clearly demonstrate their understanding of the role and capa bilities of such interaction as a vital resource for their sustainable development. However: The key stakeholders for Russian companies are still the government, employees and the local community; involving new stakeholders in the interaction is proceeding slowly. Dialogue between the business community and the government is evolving vigorously, although the traditional notion of corporate social programmes as forced and ‘substitutive’ strongly conflicts with the companies' desire to link CSR with gaining long term competitive advantages. A key problem is still that of generating the demand of a wide circle of stakeholders on corporate social investment issues as the basis for development of a systemic, balanced approach to socially responsible corporate strategy.

Evolution of CSR and Social Investments in Russia

3.2. Social Investments by Sector

C H A P T E R

3.1. Scale of Companies' Social Activity: Quantitative Social Investment Index

3.3. Scope and Consistency of Making Social Investments 3.4. Forecast of Changes in Social Investments 3.5. Weaknesses in the Organisational Support for Social Investments

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Chapter 3. Evolution of CSR and Social Investments in Russia

omprehensive analysis of corporate social investments covering both quantitative and qualitative indicators of their deployment in Russia gives a true picture of the general state of corporate social performance of Russian companies, while trends of the relevant social investment indicators help trace the general evolution of CSR in the country. Certainly, any interpreta tion of the findings from the sample data should take into account that the data reflects the largest and most CSR active companies. Thus, the findings cannot be extended to cover the entire Russian business community. However, the analysis of a sample of the 102 most successful companies in Russia allows us to trace how social investments are made by the Russian business community in a concentrated fashion. The list of compa nies covered by the survey is set out in Appendix 5 while Appendix 2 gives the sector, form of ownership and size of each survey participant. It is noteworthy that the research was as complex as it was unique: there are currently no official figures that could be used to compare the research findings against (the latest ROSSTAT (Federal State Statistics Service) data on corporate social expenditures dates back to 2001 2002). To meet the research objectives, quantitative and qualitative social investment indices of business in Russia were calculated (see calculation methodology in Appendix 3). Neither index demonstrates a positive trend. However, consideration was given not only to the indices used in the Report on Social Investments in Russia 2004, but also to other indicators which provide at least partial insight into the qualitative changes in business conduct over the four years separating the first and second phases of the survey. Ultimately, with all its ambiguity, analysis of the situation shows not so much stagnation as evidence of attempts to find the most rational and balanced ways of transforming CSR principles into an effective corporate strategy.

3.1. SCALE OF COMPANIES' SOCIAL ACTIVITY: QUANTITATIVE SOCIAL INVESTMENT INDEX Evaluation of the overall social investment situation in the Russian business communi ty is provided by the quantitative index calculated from the aggregated indicators of all the sampled companies (see table 3.1). In terms of social expenditure per employee (IL), the scale of the social investments did not change considerably in 2007 compared to 2003, although the social investments to gross sales ratio (IS) increased from 1.96% to 3.76% in the same period. Expenses for social programmes can be sup

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posed to change in the Russian business community in ‘proportion’ to business deve lopment, both as the volume and value of goods produced or services rendered and as the level of employment. In other words, the intensity of social investments in Russian companies is in direct relation to the level of business development when, as the company consolidates its market positions, its long term development strategy, formulated with fundamental CSR principles in mind, is outlined and implemented. Table 3.1

Quantitative social investment indices in 2003 and 2007 Social Investment Index by Types

2003

2007

Social investments per employee (IL)*

42807 rub.

54335 rub.

Ratio of social investments to gross sales (IS)

1,96%

3,76%

Ratio of social investments to pre tax income (IP)

11,25%

6,25%

*Note: Value indices are given in 2007 prices. Source: Russian Managers Association, 2008.

This background highlights the negative trend in the social investments to pre tax income ratio (IP) that almost halved over the four years and averages 6.25% in the sample. This can be attributed to the most successful Russian companies becoming more systemic in their approach to choosing social investment targets and more thorough in monitoring performance of this activity since the first phase of the research. Yet, in half of the surveyed companies IP did not exceed 12.5%. It is revealing that similar findings were obtained by the Charities Aid Foundation whose data shows that Russian companies spend, on average, from 10% to 17% of their net income on external social programmes.6 As shown above, the industrial cluster to which a company belongs (primary, process ing or services sector) largely predetermines the specifics of its social investments. This was also reflected in the quantitative indicators which behaved dissimilarly in dif ferent sectors in 2003 2007 as well (see table 3.2). Table 3.2

Quantitative Russian company social investment indices by sector in 2003 and 2007

Sector

Primary sector

Social investments per employee (IL), rub.*

Social investments to gross sales (IS), %

Social investments to pre tax income (IP), %

2003 г. 2007 г.

38908

1,7

8,2

83211

6,1

5,2

Processing sector

46055

27928

3,8

1,3

24,4

19,3

Services sector

85190

47403

1,2

2,1

30,6

24,2

*Note: Value indices are given in 2007 prices. Source: Russian Managers Association, 2008.

6. N. Kashtan. Occupation for the Kind and Loyal // Vedomosti FORUM. Materials of the III Annual Conference of the Vedomosti newspaper. 2007 (April) p.4.

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The most obvious growth of social expenditures over the period under consideration was shown by the primary sector, which became the absolute leader in 2007 in social investments per employee (IL) and by social investments to gross sales ratio (IS). The soaring of social investments driven by the fuel industry is likely to be the result of market conditions: rising oil prices and the related growth of company revenues, as well as deeper integration into the global economy. The leading position of this industry is understandable since it is currently the largest contributor to the country's GNP. The services sector, which had the highest IL in 2003, ranked halfway between the other sectors in 2007. Notably, the leading industry also changed: in quantitative terms, 2003 was marked by the domination of the transport industry, while 2007 saw the high tech communications industry outdoing the others by far. This evidences a growing commitment by these dynamically growing service industries to corporate social activity. Finally, the processing sector showed a decline in all these indicators. The new leader in the cluster is now the wood processing industry which in 2007 by far outstripped the chemical industry, the best performer in 2003 in terms of funding corporate social programmes. A more detailed sectoral analysis of the quantitative indicators reveals that in 2007 the specifics of each sector still had a great impact on the social investment strate gy of the largest Russian companies (see charts 3.1 and 3.2). The direct measures of sectoral social investments changed dramatically in 2007 compared to 2003 (however, due to the characteristics of the sample, these indicators are only compa rable by rank). It should be noted that despite the drastic differences in levels of investment made amongst the industries within each of the three sectors, same sector industries dis play a certain similarity of social investment ‘behaviour’. In 2007 this tendency was more apparent than in 2003. Thus, it is both specific industry factors and the wider sectoral background that affect decision making on the implementation of CSR prin ciples.

3.2. SOCIAL INVESTMENTS BY SECTOR The sectoral background of the respondent companies strongly affects not only the level of funding for corporate social programmes, but also the structure of social investments (see table 3.3). That said, a principal pattern common for all companies irrespective of their sector is the predominance of the two ‘internal’ investment paths, namely HR development and employee health & safety, over the four ‘exter nal’ targets for investment, namely local community, consumers, business partners and the environment. It should be noted that ‘external’ targets for corporate social investments mostly con cern the wood processing industry, the chemical industry and services (including public utilities). In 2007 companies of these industries allocated from 2/3 to 3/4 of their total corporate social programme funding to the local community, building

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Chart 3.1

Social investments by Russian enterprises per employee by sector in 2003 and 2007, thousand roubles 135,9

Fuel industry

21,9 124,8

Wood processing

35,8 92,7

Communications

30,7 62,7 53,9 61,1 57,6 59,7

Power industry Metallurgy Consumer goods and services Service

14,8 46,8 4,5 27,2

Chemical industry

Transport

145,7 14,3

Machinery construction Financial sector

138,3

23,7 18,1 21,9

Professional services

32,5 2,9

56,7

2007 2003

Note: Value indices are given in prices for 2007. Source: Russian Managers Association, 2008. Chart 3.2

Social investments by Russian enterprises as a percentage of gross sales by sector in 2003 and 2007, % Fuel industry

10,5

1,1 9,1

Communications

1,6 5,5

Metallurgy

3,9 2,8

Power industry Wood processing

5,5 1,8

Chemical industry Service Machinery construction Consumer goods and services Transport Financial sector Professional services 2007 2003

4,2

2,4 11,9

1,5 0,4 1,0

3,6

1,0 0,9 0,4 1,6 0,4 0,1 0,1 1,4 Note: Value indices are given in prices for 2007. Source: Russian Managers Association, 2008.

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Table 3.3

Application of social investments by industry, % of the total social investments HR deve lopment

Health & safety

Ethical business conduct towards consumers

Ethical business conduct towards business partners

Local commu nity

37,0 51,0 66,1 54,8

17,5 7,6 8,9 9,7

0,0 2,8 0,8 1,6

0,0 0,2 0,2 0,2

31,1 17,8 11,5 17,4

14,3 20,5 12,5 16,3

24,2 69,0 71,5 34,2 22,9 44,9

7,4 19,3 2,4 14,5 10,0 12,5

0,0 0,2 0,1 3,9 1,3 1,3

0,4 0,7 2,0 2,3 0,2 1,0

10,8 6,7 23,0 7,3 7,5 9,4

57,1 4,0 1,1 37,8 58,0 30,9

58,3 27,2 11,7 17,3 73,0 87,4 46,3

3,2 23,7 10,2 7,0 11,1 4,8 8,5

4,7 3,7 3,9 71,0 9,5 2,8 16,8

1,1 4,3 2,8 2,6 3,2 0,0 2,0

29,5 25,9 3,8 1,6 3,2 4,3 15,3

3,2 15,2 67,7 0,5 0,0 0,7 11,0

Goal

Primary sector Fuel industry Metallurgy Power industry Total Processing sector Wood processing Machinery construction Consumer goods Construction Chemical industry Total Services sector Financial sector Professional services Services, including public utilities Communications Retail Transport Total

Environ mental management and resource saving

Source: Russian Managers Association, 2008.

relations with consumers and partners, and environmental issues. More than half of the expenses in all these industries go to environmental management and resource conservation, which is entirely justifiable given their specific sectoral characteristics. The prevalence of the ‘internal’ targets over the ‘external’ ones is typical for the power industry, machinery construction and consumer goods production as well as for retail and transport companies. Enterprises in these industries care the most for their employees, whose development and motivation attract at least 2/3 of their social programme budget. Given the deficit of highly qualified staff, it is these sectors where the task of recruiting, ‘raising’ and retaining qualified employees ranks first. As shown by the research, the structure of corporate social investments also depends on the respective industries' required level of labour, power and raw materials. Labour intensive industries are mainly found in the services sector. Unlike other sectors, enter prises in the services sector usually have a high share of social investments allocated for building relations with counterparties: consumers (16.8%) and business partners (2.0%). At the same time, power and raw material intensive industries represented in the primary and processing sectors draw a different picture. In the processing sector, much attention is paid to environmental issues and health & safety of employees

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(30.9% and 12.5%, respectively). In the primary sector, apart from environmental management and resource conservation, a sizable portion of social investments also serves to support the local community (16.3% and 17.4%, respectively). Primary sector Enterprises of the fuel industry commit a large part of their social expenditures to HR development (37.0%) and local community support (31.1%). The structure of invest ments directed towards the development of human resources (54.5%) and those directed towards the formation of an environment which is favourable for the sustain able development of the company (45.5%) suggests that enterprises in the fuel industry pursue a balanced social policy. However, compared to the earlier research data, funding assigned to ensure ethical business conduct (towards consumers and partners) dropped practically to zero since 2003. The financing of environmental management and resource conservation more than halved (from 35.5% to 14.3%) whilst investments in the local community nearly tripled (from 10.9% to 31.1%, respectively). The latter change may be linked, in particular, with the housing policy of most fuel companies: to improve the quality of life of their employees, companies develop housing for them and improve the local social infrastructure. The social investment policy in metallurgy is more staff oriented (HR development and health & safety account for 58.6% of total social investments). Furthermore, much is spent on environmental management and resource conservation (20.5%) as metallurgical enterprises have a huge technological impact on the environment with in their area of operation. Traditionally metallurgical enterprises bear more social commitments also due to being enterprises which form company towns. As a result, local community support is another social investment priority for them (17.8%). The power industry outdoes other industries of this sector on the count of invest ments in HR development and health & safety (75.0%) but is the last to invest in the local community (11.5%), environmental management and resource conservation (12.5%). Contrasted to the previous research data, environmental issues and resource conservation lost two thirds of their financing to HR development. This change in social policy priorities may have been driven by the industry's restructuring in 2004 2008. Processing sector Wood processing enterprises devote most of their social investments to environ mental management (57.1%). Compared to 2003, funding of environmental causes and resource conservation more than tripled; however, this coincided with a cutback in spending on HR development and local community support. In machinery construction the main item of expenditure both in 2007 and 2003 was HR development (69.0%). The ‘internal’ flank of social investments generally picked up over the four years. For example, health & safety expenditure almost tripled (from 6.8% to 19.3%) whilst spending on ethical business conduct fell (from 15.5% to below 1%). Such a considerable predominance of ‘internal’ social investments may be attributable to the machinery construction companies' keenness to promote the tran sition to more effective, innovative technologies of ‘soft management tools’ by improving the qualifications of staff.

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In consumer goods production, the focus is on HR development, with its ‘weight’ having increased 1.5 times (from 47.1% to 71.5%) over the four years. As in 2003, second after HR development comes local community support, whose investment stake in 2007 was roughly the same, i.e. 23.0%. This fact reflects the attachment of consumer goods producers to areas which serve as markets for their goods. In construction, HR development accounts for 34.2% of the total cost of corporate social programmes, with health & safety taking 14.5%. A sizable share of social expendi tures goes on environmental management and resource conservation (37.8%). Enterprises of this particular industry invest in ethical business conduct towards consumers three times as much (3.9%) as is average for the processing sector, which is quite specific to construction where reputation is important for business development. Contrastingly, chemical industry enterprises rank HR development (22.9%) after envi ronmental management and resource conservation (58.0%). This may be due to the REACH regulation on chemicals adopted in 2006 and requiring environmental compli ance of substances exported to the EU. It is of note that the funding was redistributed not within, but between the ‘internal’ and ‘external’ targets of social investment. Services sector Social investment structure in the financial sector changed dramatically in the four years. For example, HR development share shrank (from 75.9% to 58.3%) to the benefit of local communities (from 17.0 to 29.5%). This implies that, despite shortages of quali fied staff, these companies are currently more worried about their market positioning. Professional services are characterised by a relatively high aggregate level of ‘inter nal’ investments which are split almost equally between HR development and health & safety (27.2% and 23.7%, respectively). Interestingly, as in the financial sector, ‘external’ social investments were boosted in terms of local community support com pared to 2003 (from 0 to 25.9%). Much unlike other service industries, in service provision (including public utili ties) more than half of the companies' allocations for social policy go to environmen tal management and resource conservation (67.7%), while ‘internal’ social invest ments represent less than one fifth of the overall budget. Companies of the high tech communications industry apply their social investments mainly to ethical business conduct towards consumers (71.0%), which is to be expected for their highly client oriented business. The specifics of their business compel retail companies to earmark for HR develop ment the lion's share (73.0%) of their social investments, of which the ‘internal’ stake is 84.1%. Retail companies allocate 9.5% of their social investments to consumer relations, ranking second after communications in their sector. This may be considered a positive development compared to 2003 when this industry barely invested in ethical business conduct at all. The social policy of transport companies also gives priority to ‘internal’ social investments, with 92.2% of their total accounting for HR development and health & safety. No other industry surveyed matches this. It is of note that 2003 saw a similar situation when this ratio stood at 91.4%.

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3.3. SCOPE AND CONSISTENCY OF MAKING SOCIAL INVESTMENTS Along with the above quantifications, a proper description of the state of corporate social investments in Russia also requires a qualitative perspective. The qualitative index (IK) is built on the basis of a similar index calculated in the Report on Social Investments in Russia 2004. Due to changes in the wording of questions and possible answers in 2007, the qualitative index of social investments was also updated. Therefore, the findings attained are of interest in their own right, even without direct comparison. Nevertheless, the general logic of building the index was preserved. Three sets of crite ria were used: institutional set up of companies' social policy, maturity of the social actions reporting system and comprehensiveness of corporate social investments. Conceptually, the quantitative index differs from the qualitative one in that it assesses the scale of funds allocated for social investments. The qualitative index, on the other hand, shows how the process of social investments is organised inside companies and how deeply CSR principles are integrated into the business's strategy and operational activities. The qualitative index of social investments was calculated on the basis of 13 simple indicators reflecting the present state of Russian business. Group 1 â&#x20AC;&#x201C; Formalisation of CSR Strategy. This group covers the following three criteria: whether a company has a specific document stating its CSR strategy (a separate document approved at executive level; a collective agreement; a code of ethics; a corporate code of conduct or any other document); whether a company has a department responsible for the implementation of CSR strategy; whether a company has selection criteria for corporate social investments. Group 2 â&#x20AC;&#x201C; Reporting System for Social Activity. This group covers the following four criteria: whether a company has annual financial reports compliant with international standards; whether a company prepares periodic non financial (social, environmental or sustainable development) reports; whether a company prepares non financial reports in compliance with internation al standards; whether a company appraises the performance of its corporate social investments. Group 3 â&#x20AC;&#x201C; Scope and Consistency of Social Investments. This group covers the following six targets for expenditure: HR development; health & safety of employees; ethical business conduct towards consumers; ethical business conduct towards suppliers and other business partners; local community; environmental management and resource conservation.

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The overall integral qualitative social investment index (IK) is calculated (see Appendix 3) based on Yes/No values for each of the 13 indicators. As shown by the research, the best situation is currently observed in formalisation of social investments while the worst situation is that in accounting and appraising compa nies' actions (see chart 3.3). As noted above, the qualitative index values calculated for 2003 and 2007 are not directly comparable. Nevertheless, it should be noted that the hierarchy of the companies' ‘achievements’ in making corporate social investments remained the same: general documentary support for corporate social programmes outstrips development of the system of accounting and evaluating the outcomes. Chart 3.3

Integral qualitative social investments index and its components, % 87 87

Institutional base 66

Integral qualitative social investments index

72 64

Comprehensiveness of the process Accounting & analytical support

80 52 52

2007 2003

Source: Russian Managers Association, 2008.

3.4. FORECAST OF CHANGES IN SOCIAL INVESTMENTS The research enables identification of the main tendencies in setting social invest ment priorities by the Russian business community. Of special interest is the respon dent companies' expectations of social investing as well as comparison of the data from the first (2003) and second (2007) phases of research which reveal the develop ment vector of the leading Russian companies. Almost 3/4 of the respondent companies planned larger social investments in 2008 com pared to 2007 while only 5% of them reported a possible reduction (see chart 3.4). Importantly, half of the companies which foresee a rise in the financing of their corpo rate social programme expect it to grow in 2008 by not more than 17%. Only 7% of the companies are planning to double or triple the volume of funding. Given the level of inflation in 2008, the economy will not experience any palpable growth in social investments. Judging by the expected structure of social investments in 2008 (see chart 3.5), the general priority of ‘internal’ investments is not just preserved but strengthened (the top two positions in the 2008 expenditure ranking belong to HR development and employees' health & safety). It is also useful to look at the comparative analysis of social investment distribution by principal target. To recap, ‘internal’ investment targets include such areas as HR development and health & safety, while ‘external’ targets include environmental

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Chart 3.4

Total planned allocations for corporate social programmes in 2008 compared to actual expenditures in 2007, %

Expenditures to fall Expenditures to remain the same

Other 5

4 Expenditures to rise

Note: Data is given as a percentage of the respondents who answered the question. Source: Russian Managers Association, 2008.

Chart 3.5

Breakdown of Russian corporate social investments, 2007 / 2008, % 43,6

HR development

48,7 14,1

Environmental management and resource conservation

19,0 8,8

Local community development

14,1 14,5

Health and safety of employees

10,2 7,8 6,9

Ethical business conduct towards customers Ethical business conduct towards business partners

0,9 1,1

2008 2007

Note: In the second phase of survey in 2007, the possible answers to the question on the breakdown of Russian corporate social investments were re worded as compared to 2003. The position ‘ethical business conduct’ was studied not as a whole, but with respect to customers and business partners separately to obtain more detailed information on this position. Source: Russian Managers Association, 2008.

management and resource conservation, local community support and ethical business conduct towards consumers and business partners. Whilst in 2003 the percentage ratio of the aggregate ‘internal’ to ‘external’ social investments was 54.2/42.7, in 2007 it is 58.9/41.1. Thus, the prevalence of ‘internal’ corporate social investments over ‘external’ ones has quite a long lasting and steady tendency. Since the first phase of the research (see chart 3.6), the share of investments in HR development has steadily topped the overall social investment structure, showing

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Chart 3.6

Forecast of changes in social investments by Russian companies 2003 / 2004, %

HR development

44 23 21

Environmental management and resource conservation 11

Local community development Health and safety of employees Ethical business conduct

9 7 9 4 5

2004 2003

Source: Russian Managers Association, 2004.

some further growth and approaching 50% of the total investments in corporate social programmes. Another interesting trend to emerge in the period in question was the much widened focus on issues of employee health & safety. Their funding share near ly doubled in 2007 compared to 2003. This testifies to established Russian compa nies' preference for long term business development strategies over short term ones, with heavy investment in maintaining their staff's working potential and health, and ensuring adequate safety conditions. Another fact coming to light is that investments in environmental management and resource conservation retain second position on the priority list, their share having been stable over the last four years and accounting for 1/5 of the total investments in corporate social programmes. This situation arouses some concern. Amid growing public attention to the issues of sustainable development, careful use of natural resources, efficient waste disposal and recycling, Russian business displays relative ly weak involvement in attempts to tackle these issues. The actions taken by the respondent companies are mostly â&#x20AC;&#x2DC;protectiveâ&#x20AC;&#x2122; and intended to mitigate the relevant short term risks.

3.5. WEAKNESSES IN THE ORGANISATIONAL SUPPORT FOR SOCIAL INVESTMENTS A serious shortcoming with regard to social investing by Russian companies is still poor informational transparency and the detail and structure of the disclosure. For example, the tracking of social expenditures by item hardly improved in 2003 2007. This is indirect evidence of the lack of clear selection criteria and follow up performance appraisal for corporate social projects in many large companies.

Report on Social Investments in Russia 2008 CHAPTER 3

Integrating CSR Principles into Corporate Strategy

Naturally, under these circumstances many companies also lack the range of social investment best practices and their success is situational. In preparing this report, despite the abundance and diversity of social programmes, it was hard to find, amongst the information provided by the companies specifically for this research or publicly available through the companies' websites and in their social reports, a detailed description of such a programme and its stated purpose (apart from the ‘general humanitarian’ one), actions required for its achievement and the results. Corporate social activity in Russian business is still often associated with PR and remains isolated in the relevant departments. Consequently, the public at large is only fed limited, and favourable, information rather than the true picture of corpo rate social activity with all its natural perplexities and problems. In general this situ ation unfortunately reduces the CSR role in Russia to a ‘cosmetic’ rather than a strategic one. It has to be emphasised that a similar situation was seen in 2003. Thus, the past four years provided no compelling incentives to boost CSR activity and crystallise best practices that would substantiate its Russian specificity. However, it is true that the lack of any serious progress on this count is largely due to the lack of a systemic understanding of corporate social activity and the narrow spread of the best global and domestic practices. Institutionalising of corporate social investments in Russia continues with its inherent spontaneity. In this situation business must do better in formalising the procedures for selecting corporate social programmes with the ‘right’ questions to be asked internally: which social investment areas have priority for the company and why? To answer these questions more appropriate feedback about the effectiveness of the spent resources, both organisational and financial, must be obtained. *** Thus, the period from 2003 to 2008 can generally be depicted as a time when the leading Russian companies acquired and accumulated corporate social activity expe rience, and identified appropriate targets for and optimal levels of social investments. However: The quantitative index of social investments of Russian business did not display any positive behaviour in 2003 2007; the structure of corporate social investments still tends to have ‘internal’ targets prevailing over ‘external’ ones. The qualitative index of social investments of Russian business does not reveal any meaningful progress; the system of reporting and appraisal of outcomes is developing slowly; as in 2003, CSR practice is mainly the responsibility of HR and PR departments. A still important issue is to improve informational transparency and completeness of disclosure, the low level of which often signals a perfunctory attitude towards cor porate social investments and CSR in general.

APPENDICES

APPENDIX 1. Glossary APPENDIX 2. Research Methodology APPENDIX 3. Methodology Used for Calculating the Social Investment Index of Russian Business APPENDIX 4. Best CSR and Social Investment Practice of Russian Companies APPENDIX 5. Organisations and Companies which Participated in the Social Investment Index of Russian Business 2008

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Integrating CSR Principles into Corporate Strategy

APPENDIX 1

APPENDIX 1.

GLOSSARY

Corporate social responsibility (CSR) is a phi losophy of conduct and a concept of the business community, companies and business representa tives adapting their activities so as to meet stake holders' expectations in the pursuit of sustainable development. Corporate social performance is a system of corporate social responsibility principles, social responsiveness processes based on such princip les, and their observable outcomes which result from a company's societal interactions. Sustainable development is comprehensive eco nomic, social and environmental development that meets the needs of the present without jeopardis ing future generations' opportunities and aspira tions. Stakeholders are organisations, communities and individuals that form a system of expectations and, accordingly, affect, and are themselves affected by, companies' decision making. Stakeholders can be internal (owners, emp loyees) and external (consumers, suppliers and other business partners, competitors and local communities, including people in the area of operation and local authorities, state authorities,

non commercial and non governmental organi sations, activists and the media). Corporate governance is a system and process of interactions, and a complex of principles, rules and procedures for interaction between a compa ny's owners (shareholders), its board of directors, management and other stakeholders. Corporate social programmes are a company's voluntary economic, social and environmental activities intended to meet the relevant expecta tions of its internal and external stakeholders. Corporate social investments are material, tech nological, managerial, financial and other resources of a company utilised in the implementa tion of corporate social programmes which in the strategic sense are intended to bring about a finan cial benefit for the company. Corporate social report (non financial report) is a public tool for informing shareholders, emp loyees, partners and other stakeholders about how and at what rate a company is achieving its eco nomic sustainability, social welfare and environ mental stability goals as stated in its mission state ment or strategic development plans.

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APPENDIX 2.

Research Methodology

The research behind the ‘Report on Social Investments in Russia 2008’ consisted of two stages: a questionnaire survey ‘Social Investment Index of Russian Business 2008’ (quantitative data) and non formalised interviews (qualitative data). Quantitative information was gathered through a standardised remote questionnaire survey.

The 31 entry questionnaire was divided into the following three sections: 1. General information on the company: sector, key economic performance indicators and busi ness conduct standards. 2. Description of the company's corporate social responsibility strategy. 3. Quantified expenditures on corporate social programmes. The questionnaire included closed and semi open single or multiple choice questions. Most of the questions were laid out on a nominal scale. Answers to those questions were quantified into univariate frequency distributions. The questions on financial performance were set out on an inter

val scale, allowing the calculation not only of absolute and relative frequencies, but also the median, a measure of central trend appropriate to the level of the measurement. Sample Principles. Participation in the survey for the ‘Report on Social Investments in Russia 2008’ was sought from approximately 2,000 companies which are industry leaders listed in the major national rankings and which publicise their activity in the corporate social responsibility domain, including: ‘Social Investment Index of Russian Business 2004’ survey participants; companies featuring in the Russian Managers Association ‘Russia's Top 1000 Managers’ rating in 2007; companies featuring in the Russian Managers Association Depositary of Social Initiatives; winners of VII All Russia contest ‘Russian Organisation of High Social Efficiency’ in various nominations (2007); companies rated in ‘EXPERT 400’ (2007); industry leader companies presented on their corporate web sites as socially responsible busi nesses.

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Integrating CSR Principles into Corporate Strategy

Sample Description. The survey covered 102 companies. The field stage took place in April July 2008. That said, the second phase of survey involved 30% of the companies covered by the 2004 survey, a fact not only important for interpretation of the findings but also enabling partial comparison of the first and second phase data. It is of note that 89% of the companies in this research may be referred to as large businesses, each with 2007 gross sales exceeding 1 bln roub les. Small and medium enterprises were far less represented (4 and 7% respectively). The companies' distribution by form of ownership was as follows: private – 81%; mixed – 11%; public – 8%. Sectoral distribution was as follows: metallurgy – 14%; financial sector – 12%; power industry – 12%; mechanical engineering – 11%; transport – 7%; professional services – 7%; chemical industry – 7%; fuel industry – 7%; telecommunications – 6%; construction – 5%;

APPENDIX 2

retail – 4%; consumer goods – 4%; services, including public utilities – 3%; timber industry – 2%. All industries were grouped into three economic sectors, with the companies being distributed as follows: services sector – 38%; primary sector – 33%; processing sector – 29%. To complement the quantitative research, the Russian Managers Association commissioned the Institute of Sociology of the Russian Academy of Sciences, to carry out 10 non formalised expert interviews with senior managers who supervise the implementation of corporate social responsibility policy. An important mechanism for the validation of hypotheses and findings was four expert panels held at every stage of the compiling of this report. These expert panels focused on discussing the report's subject matter and the conceptual framework of the research, formulation of the quantitative research questionnaire and the structure for the qualitative interview questions, and verification of the research findings and key theses of the report. The expert panels were rep resentative of the business community, academ ic circles and non governmental and internation al organisations.

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APPENDIX 3.

Methodology Used for Calculating the Social Investment Index of Russian Business

Methodology used for calculating the Quantitative Social Investment Index The second release of the ‘Report on Social Investments in Russia 2008’ uses, as did the first report for 2004, 3 types of quantitative social investment index: Specific Social Investment Index – IL which repres ents social investments per employee in the Russian companies covered in our report (shown in Russian roubles). This index has the following calculation for mula:

where Ci is the amount of social investments of company i (including voluntary and mandatory expenditures on social programmes); Li is the average number of employees of company i; and n is the sample number. When comparing different periods, a relevant price deflator may be applied to adjust the IL indices; and when comparing different countries, exchange rates or purchasing power parity ratios may be applied. Social Investments to Gross Sales ratio – IS (shown as a percentage). The calculation formula for this index is as follows:

where Si is the gross sales of company i.

Social Investments to Pre tax Income ratio – IP (shown as a percentage). The calculation of this ratio is similar to that of the IS index. Since a survey cannot normally provide accurate financial performance indicators (amounts of social investments, income and sales volumes) of Russian companies, the calculation method is adjusted to rely on interval values, stated by the companies as the lower and the upper limits thereof. To switch from interval values to punctual values, the method averages out the above limits. The formula for the sales volume indicator is as follows:

min

max

where Si and Si are the lower and the upper limits of each indicator of company i. Application of this formula leads to certain inaccuracies in the cal culation of the social investment index. However, such measurement is as precise as possible in Russia at the present stage.

Methodology used for calculating the Qualitative Social Investment Index In contrast to the quantitative index, which outlines the magnitude of social investments, the qualitative index measures the scope and consistency of CSR. There are both special and general qualitative indices: The Special Qualitative Social Investment Index for a single attribute IK(j) shows to what degree this qualitative attribute exists in the sample of compa

Report on Social Investments in Russia 2008

Integrating CSR Principles into Corporate Strategy

nies (as a percentage), and is calculated as fol lows:

where n is the sample number, and j is one of the attributes which describe different aspects of CSR principles implementation. The Overall Integral Qualitative Social Investment Index IK indicates the level of comprehensiveness of social activity of the sample companies (as a percentage) and is calculated as follows:

where n is the sample number, j is one of the attri

APPENDIX 3

butes which describes different aspects of CSR implementation, and m is the number of the attri butes which describe different aspects of CSR implementation. All special qualitative social investment indices and the general integral qualitative index are nor malised and can range from 0 to 100%. The higher the index, the more comprehensive the companies' social policy. By comparing indices for different attributes, â&#x20AC;&#x2DC;bottlenecksâ&#x20AC;&#x2122; or challenges can be detected.

Breakdown of financing by main target of corporate social programmes The key descriptive characteristics of the break down of the corporate social programme financing in 2007 and 2008 are set out in the tables below.

Breakdown of financing by main target of corporate social programmes in 2007 Main targets

Subsample volume

Average value, %

Minimum value, %

Maximum value, %

HR development Health and safety of employees Ethical business conduct towards customers Ethical business conduct towards suppliers and other business partners Local community Environmental management and resource conservation Other

79 76 53

46,7 15,6 10,3

2,00 1,00 0,06

100,00 70,00 85,40

52 71 59 7

5,8 14,6 20,7 14,6

0,02 0,70 0,01 2,40

32,00 75,00 92,00 50,00

Forecast of change in expenditures by main targets of corporate social programmes in 2008 Main targets

Subsample volume

Average value, %

Minimum value, %

Maximum value, %

70 63 38

46,9 16,2 10,5

1,50 0,60 0,04

93,70 63,00 92,00

40 61 50 8

5,5 14,1 19,8 6,4

0,02 0,01 0,10 0,50

32,00 77,00 93,00 16,00

Source: Russian Managers Association, 2008.

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APPENDIX 4.

Best CSR and Social Investment Practice of Russian Companies

HR DEVELOPMENT Corporate medical centre, UC RUSAL To enhance the efficiency of each employee, miti gate industrial harm to health and reduce labour loss due to illness, UC RUSAL has adopted a long term corporate healthcare programme. The first step of this programme was the foundation of a medical service, the RUSAL Medical Centre (RMC), in 2005. RMC's main objective is to reduce the annual labour loss due to illness to the level of 600 days per 100 employees. The company's general approach to corporate healthcare is that the health of employees should be ensured through a well thought out medical treatment system and, equally, the healthy lifestyles of the employees themselves. Since early treatment is more effective, RMC has intro duced an occupational disease and accident pre vention system that helps to increase productivity and give workers maximum protection from injury and disability.

diseased with frequent exacerbations, and checked daily for regulatory reasons. Here, the effectiveness criterion of medical observation is the employee's transfer from a ‘problem’ to a ‘healthier’ group. The underlying principles of RMC are as follows: on site location of medical units; constant emergency readiness; observance of a common corporate standard of medical care; ensuring continuity at various stages of medical treatment; comprehensive approach to health care; continuous improvement of the quality of medical treatment quality. As a part of this programme, UC RUSAL has estab lished its own polyclinic complex which specialises in diseases typical of aluminium industry workers.

RMC employs methods of early detection of occu pational diseases, regularly checks UC RUSAL entities for compliance with health and safety standards, keeps its equipment up to date and promotes a healthy lifestyle.

Thus, RMC serves a dual purpose: it performs all measures required to reduce labour loss and fur thers the corporate voluntary health insurance pro gram.

First aid is fully financed by the company and involves on site medical assistance for the factory staff. Under this scheme, staff are classified into four dispensary groups: virtually healthy, chroni cally diseased with rare exacerbations, chronically

RMC is unique by its scale, with branches in all of the company's regions of operation and offices to be opened in all of the company's countries and cities of operation, of which there are several dozen.

Report on Social Investments in Russia 2008 Integrating CSR Principles into Corporate Strategy

Up to date industrial healthcare regulation mecha nisms help not only to enhance healthcare but also to ensure the efficiency of social policy, which will lead to improved life expectancy and assist labour force retention when labour inflow lessens.

Staff Training Programme ‘Responsible Alcohol Consumption’, SABMiller RUS A responsible attitude towards conducting busi ness is fundamental for the development of a suc cessful and sustainable business. That is why SABMiller RUS's activities are based on the Sustainable Development programme which is a key business strategy of SABMiller both globally and locally. This programme stems from 10 sus tainable business development principles encom passing the social, environmental and economic components of the company's activities. Prevention of irresponsible drinking is the first pri ority of the Sustainable Development programme. In its activities, SABMiller RUS is guided by a sys tem of beliefs and principles which shape its entire irresponsible drinking prevention efforts. Information and educational programmes explain ing the company's standpoint with regard to responsible alcohol consumption are run both internally (for the staff) and for consumers. SABMiller RUS has adopted an alcohol policy for employees intended to set common standards of responsible alcohol consumption in various situa tions, create and maintain a healthy and safe work ing environment, uphold a high standard of behaviour by the employees, inform and educate staff on responsible alcohol consumption and risks of alco hol abuse. As prevention programmes are an essential element of staff training, SABMiller RUS together with the Transatlantic Partners Against AIDS non governmental organisation have deve loped an educational seminar on alcohol abuse prevention. The key module of the programme is a four hour training session which explains the extent of the alcohol abuse problem in society, the social problems for a person and his/her family and colleagues caused by alcohol abuse, the causes of alcohol dependence, its consequences and risk

APPENDIX 4

factors. A key aspect of the seminars was that they were run by medical professionals and alcohol abuse specialists. This is crucial for the effective ness of the prevention programme in that emp loyees could talk to specialists in this field. Throughout 2008 the company held about 60 ses sions at the production facilities in Kaluga, in the company's regions of operation and in the Moscow office. SABMiller RUS plans to improve the existing programme and develop an interactive remote programme ‘Responsible Approach to Alcohol Consumption’. This multimodule tool of the training programme will enable coverage of the growing number of the company's employees, promotion of responsible drinking among its partners, and also the training and education of sellers and con sumers of its products.

Corporate pension system, JSC Russian Railways As one of the country's largest employers, JSC Russian Railways (RZD) sees social responsibility to its employees as a priority. Corporate pension provision for railway workers is governed by a regulation on non governmental pension provision pertaining to RZD's employees that reflects the following principles: 1. The employer and each employee contribute equal amounts to the employee's future corporate pension. 2. The monthly pension contribution depends on the age of the employee. 3. The corporate pension payable depends on the employee's salary level and seniority within RZD or the pensionable continuity of contributions. 4. RZD guarantees payment of the assigned corpo rate pensions. 5. Corporate pensions are for life. Any RZD employee joining the non state pension provision agreement may choose one of the follow ing pension schemes: savings, savings insurance, insurance savings and insurance. These options

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differ in the terms relating to contributions and inheritance. The programme also provides for a grace period for employees retiring within 15 years whose pension savings capability is very limited. During this period the company contributes more in order that the necessary pension provision level is reached. The programme is open to any RZD employee. It also allows for early retirement, i.e. RZD corporate pension provision already imple ments certain principles of professional pension systems. The corporate pension scheme for RZD and its subsidiaries is run by the BLAGOSOSTOYANIE (=Welfare) non state pension fund. The total num ber of RZD employees saving for their non state pension with BLAGOSOSTOYANIE was over 410,000 by the end of 2007. As of January 1, 2008, over 150,000 ex RZD employees were receiving a corporate pension. The programme has proved successful. For exam ple, the lost earnings replacement rate of RZD cor porate pensioners exceeds 42%. This is in line with the International Labour Organisation (ILO)'s re commendations and much above the replacement rate for most Russian pensioners (23 27%). The programme has been highly commended by present and former RZD employees. Furthermore, in 2006 the company won ‘The Best Corporate Pension System’ award and won the ‘Pension Oscar’ National Award for its contribution to the development of the Russian pension industry.

Corporate pension system, OJSC MMC Norilsk Nickel In the last two to three years, Norilsk Nickel has improved its social programmes by focussing on the development of a corporate system of non govern mental pension provision. The company pursued the following basic principles: availability of non govern mental pension provision to all the employees, and voluntary and joint participation of employees and the company in forming non state pensions. In 2006 2007 two co financed pension programmes were developed and launched: ‘Corporate Pension

Option Programme’ and ‘Shared Saving Pension’. The Corporate Pension Option Programme now covers about 60,000 employees of the company, its subsidiaries and affiliates, with an average coverage of about 90% of employees in each entity. It works as follows. The company facilitates employees' participation in the non state pension provision (NSPP) and supports those who enter into individual NSPP agreements with the non state pension fund by transferring a certain amount (10 15,000 roubles) based on annual performance results to the employees' individual pension accounts with the fund. A specific feature of the new long term Shared Saving Pension programme is its availability to each employee of any age and seniority. To make the programme attractive for employees, represen tatives of the labour collectives were involved in developing its terms. Older employees enjoy preferential terms with respect to their pension contributions. By its first anniversary, the pro gramme launched in mid 2007 covered some 28,000 employees of Norilsk Industrial District enterprises, Kola Mining & Metallurgical Company and its subsidiaries. The Joint Corporate Pension Programme launched in December 2002 relies not only on the company's financial contributions, but also on savings by the employees over their term with the company. This programme is mainly intended to ensure a sustain able and lasting ‘staff core’. The programme's appeal for employees is the company's pension down payment (the so called start up capital) which is proportionate to the employee's labour contribution before joining the programme. Throughout its life, the Joint Corporate Pension programme has been used by a total of more than 3,300 people and over 500 people have become corporate pensioners. Also, programmes dating back to the late 1990s and 2003 2005 survive as elements of the corpo rate pension system. These are ‘Six Pensions’, ‘Lifelong Professional Pension’, ‘Additional Corporate Pension’ etc. which were set up during the restructuring of the company to deal with cer tain issues. For employees of pensionable age,

Report on Social Investments in Russia 2008 Integrating CSR Principles into Corporate Strategy

they provide post retirement social adaptation, while for the company they serve to regulate the retirement of employees, staff rotation and the maintenance of social stability in labour collectives on site during structural reforms. The social adap tation programmes mostly provide for a one off additional payment on retirement.

Youth programmes, OJSC Tatneft The need for dynamic development in a competi tive environment and the demographic situation in the country has made youth support and develop ment a priority task for OJSC Tatneft. Hence, in 2000 Tatneft management initiated the creation of one of the first corporate youth organisations in the country uniting all the company's employees aged under 33. The primary objective of the youth policy is to develop the professional and creative potential of young employees, and to involve them in solving the company's problems relating to research, pro duction and finance. An important aspect of this work is the profession al adaptation of newly recruited young profession als. Special programmes have been developed to facilitate their induction into the working process and the collective. Support and development are provided for young employees through a system of coaching, production management schools, work shops, contests of ideas and proposals, seminars and other events. The company works with the young through the youth committee of Tatneft, the Young Specialists Panel, non governmental organisations, young pro active employees, the management of the company and its subdivisions. The principles of Tatneft's youth policy are: social partnership between the management and young employees in solving finance, production, technical and social problems; balance of the company's interests with the needs of its young employees for the benefit of Tatneft's dynamic development;

APPENDIX 4

consolidation of organisational efforts and fund ing of different youth policy groups; balance of the rights and duties of young employees; corporate and public control over the results of youth policy; flexible mix of social security and social responsi bility of young employees towards the company; active professional and civil position of each young employee as the basis of corporate solidarity; continuity of traditions.

Structure of Tatneft corporate youth organisation

Youth committee of Tatneft

Lead team of youth organisation

Youth committees of departments and subsidiaries of the company

Main team of youth organisation

Youth organisations of the primary collective

Base team of youth organisation

This work is aimed at providing professional deve lopment of young employees, social support, and enabling talented youth to realise their potential. The youth policy promotes interaction between young employees both inside and outside the com pany, development of tolerance and civil stance, corporate patriotism and solidarity. The Tatneft youth organisation won the republican contest for â&#x20AC;&#x2DC;The Best Youth Organisation of the Federation of Trade Unions of the Republic of Tatarstanâ&#x20AC;&#x2122;.

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LOCAL COMMUNITY Social and Cultural Projects Contest Programme, LUKOIL To support local community initiatives for solving key local issues and to make better use of its charity support, LUKOIL runs the Social and Cultural Projects Contest Programme. The major objectives of the Programme include: improving the well being of the population in the company's areas of operation; developing local communities; preserving national cultural identity; improving the environmental situation; assisting non governmental organisations supporting children's sports. The programme works on a competitive basis and is about close interaction with regional authorities and local governments as well as the involvement of local residents and NGOs in resolving social problems. The contest is held annually in each area of opera tion and has the following categories: ‘Ecology’, ‘Benevolence’, ‘Culture and Arts’, ‘Physical Culture, Sport and Tourism’ and ‘Native Land’. The contestants submit their project proposals to a designated committee in which they explain how the funds will be used and how the project will ulti mately benefit the local community. To receive a grant, the applicant organisation must first con tribute at least 30% of the requested amount. The projects are financed on a joint basis. The co fund ing arrangement motivates the contestants to raise additional funds by finding other organisations with an interest in the proposed results and willing to support the projects. Today this mechanism of partnership between business, society and autho rities is increasingly attracting the involvement of small and medium sized businesses. In recent years the contest has earned a firm place in the social life of the regions. Its scale grew from

143 projects in 2002 to over 2,000 in 2007. The number of winning projects has also increased considerably, from 37 in 2002 to 266 in 2007. The total amount of grants awarded during the period for all the participating regions exceeded 150 mln roubles.

‘Museums of the Russian North’ Programme of Support for Russian Provincial Fine Arts Museums, OJSC Severstal To stimulate the activities of regional art museums, private and public, Severstal, together with CAF Russia its organisational partner, is running the Museums of the Russian North programme. No expansion of traditional museum activities in the regions can happen without stronger links with centres of expertise, scientists and specialists or use of new information technologies. To facilitate this, the programme organisers award grants to museums following competitive selection of pro posed culture development projects. The first grants were awarded in 2007 2008 in the following project domains: renewing permanent expositions; introducing state of the art multimedia to inte grate regional museum stock into the common cultural space of Russia; organising joint exhibitions with leading Russian and foreign museums; identifying valuable pieces of art held by regional museums; research exhibitions devoted to the Russian North; multilingual publications. CAF Russia formed an independent expert panel for the initial screening of applications. Based on its recommendations, the supervisory board made the final decision on the awarding of grants. The super

Report on Social Investments in Russia 2008 Integrating CSR Principles into Corporate Strategy

visory board was formed of representatives of NGOs, art associations and international organisa tions, directors of the principal Russian museums, well known curators and art critics and representa tives of the art media. The grant fund totalled 8,750,000 roubles. The maximum funding for one project (grant) was 1,200,000 roubles. The applicant organisation's contribution and/or the funds raised from other sources for the project had to be at least 30% of the grant. The programme runs in most regions of the North West Federal District of Russia: the Arkhangelsk, Vologda, Kirov, Kostroma, Leningrad, Murmansk, Novgorod, Pskov and Perm regions, the Republic of Karelia, the Komi Republic, and the Nenets Autonomous District. Six winning projects from the first series of grant applications will have been implemented by the end of 2008: ‘Transonega Heavens’ (State Historical Architectural and Ethnographic Museum ‘Kizhi’), ‘Space of Russian North’ (Fine Arts Museum of the Republic of Karelia), ‘Painted and Printed Icon, Spiritual Wood Carving and Copper Art Castings of the XVII – Early XX Centuries from the Collection of the National Gallery of the Komi Republic’, ‘Creation of the Official Website of Kirillo Belozersky Reserve Museum’, ‘Creation of the Museum of Old Russian Art’ (Velikiy Ustyug State Historical Architectural and Art Reserve Museum), ‘Three Centuries of Russian Art’ (‘Art Culture of the Russian North’ State Museum Association). The company also published a brochure about the Museums of the Russian North programme featur ing articles on each winning museum and a description of the projects completed. A confer ence was held in September 2008 that summarised the results of the first year of the programme and set out the main plans for its development in 2009 2010. The conference united representatives of the museums that won the 2007 2008 tender, over fifty delegates from the museums of the North West of Russia, and representatives of the art public of Moscow.

APPENDIX 4

Norilsk Physical Culture and Sport Facilities Development Programme 2007 2010, OJSC MMC Norilsk Nickel A vivid example of Norilsk Nickel's social invest ments in local community development is the material, technological, managerial and other resources allocated for the Norilsk Physical Culture and Sport Facilities Development Programme 2007 2010. To care for its employees' health and support their involvement in physical training and sports, the com pany arranges annual sports days, tournaments and public sports events at its own or municipal facilities. Norilsk hosts corporate competitions such as the Norilsk Nickel Ski Track, Dudinka Alykel Norilsk track and field race and other events involving not only the company's workers but also local residents. The programme was developed in line with the objectives of the Federal Programme ‘Development of Physical Culture and Sports in the Russian Federation for 2006 2015’. It provides for equal co financing of construction and modernisation of sports facilities by the principal implementers of the physical culture and sport policy in Norilsk: OJSC MMC Norilsk Nickel and the Norilsk municipal authorities. A joint workgroup was created to pre pare and run the programme. After technical appraisal of 46 municipal sports faci lities and those of the company, the cost of renova tion works was estimated at over 400 mln roubles. Since its launch, the programme has modernised the sports halls of all Norilsk schools, repaired 23 sports facilities, including two swimming pools, sports halls of children's sports schools and an indoor skating rink, and has partially repaired the Olgul skiing centre, the Arctica sports centre and other sports facilities.

Social Investment Programmes in Kamchatka Territory, UralPlatinumHolding Sustainable business development is the basis for local socio economic development. And local

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business development requires a favourable envi ronment with socially active residents, developed SMEs, balanced fiscal relations, professionalism of governmental and municipal officials and business people, and suitable conditions for constructive dialogue between the business community, authorities and society. These issues, along with ensuring effective and safe working conditions and good environmental conditions, are the key areas the company focuses on and invests in. UralPlatinumHolding's social investment pro grammes are implemented in one of the most dis tant and economically weak regions of Russia, the Kamchatka Territory. Geographic isolation and economic detachment from the rest of Russia as well as the natural and climatic conditions of the region multiply the cost of any initiative and require constructive cooperation between the government and local business. Having set up an ongoing dialogue between the region's largest company, authorities and local com munity leaders on the platform of ‘KGD Social Partner’, a charity foundation created by the compa ny especially for the purpose, UralPlatinumHolding has managed to redirect charitable objectives for the benefit of the most urgent issues relating to the development of the territory. Since 2006 the compa ny's social investment programmes have been aimed at supporting and developing municipal administrations and local representative authorities, promoting and supporting small businesses and civic initiatives, and allaying the lack of qualified staff. The company also helps to mitigate the conse quences of natural disasters and provides material help to the residents of areas affected. The deployed practice of tripartite interaction between the company, the authorities in the compa ny's areas of operation and local communities which influence its main industrial activity, has proved itself as an effective technique for reducing uncertainty and maintaining loyalty to UralPlatinumHolding in the Kamchatka Territory. These programmes exemplify a strategic approach to charitable activities, to organising effective partnership of the business community, the authorities and the community in the

interests of the region's development, and are recommended by the Renova Group of Companies for future use by the group.

Tourism and Sports for At Risk Children and Teenagers, OJSC TGK 5 One of the charitable and sponsorship activities of TGK 5 is the enhancement of the social environ ment and development of civil society institutions in the company's regions of operation. TGK 5's initia tives supporting children and teenagers deprived of parental care or with disabilities achieved a high er profile in 2008, the Year of Family in Russia. Direct participation of the company's employees and their family members in the project is the most valuable kind of support for children and teenagers missing parental love and care, as this is exactly the type of communication that can make up for the lack of care from the older generation and help the children socialise. The programme ‘Tourism and sports for at risk children and teenagers’, which has been running since 2006, is aimed at preventing social deviancy at the Cheboksary orphanage and the Republican Rehabilitation Centre for Disabled Children and Teenagers (Chuvash Republic) through tourism and sports events, as well as drawing the public's attention to the problem of difficult children. Partners on the project are OJSC ‘Chuvash Energy Sale Company’ and Hockey Sport Club ‘Sokol’. The programme's events have become traditional and motivate children and teenagers towards a healthy lifestyle, aid the development of social skills and provide environmental awareness and moral upbringing for the future generation. The most salient events organised for the Republican Rehabilitation Centre for Disabled Children and Teenagers included the ‘Mini Olympics’ sports festival, the ‘September 1 Present to Children’ charity event, events for New Year's Eve and the International Day for the Disabled etc. In 2008 the company financed a purchase of equipment for the gym in a new building of the rehabilitation centre

Report on Social Investments in Russia 2008 Integrating CSR Principles into Corporate Strategy

which was built under a federal programme. Cheboksary orphans were treated to ‘Hot Ice’ and ‘The Magnificent Five’ sports and entertainment events, camping activities and a hockey master class by professional hockey players at the ‘Sokol’ Hockey Palace, and children's playgrounds were equipped. By running programmes in the interests of socially vulnerable groups of people, the company stands for the principle of socially responsible business conduct, and its employees fulfil their civil and human duty.

New Day Grant Programme, OJSC JSCB ‘ROSBANK’

APPENDIX 4

Day as one of the most effective charity programmes in Russia. The expert opinion of the ‘Institute for Urban Economics’ foundation put the programme among the ‘Seven Best Practices of Russian Business’ in 2003. ROSBANK received ‘Public Recognition 2006’, a National Socially Responsible Business Award initiated by the Russia wide NGO ‘Business Russia’, in the category ‘Children of Russia’ for its New Day programme. The support is provided on a competitive basis to programmes which: use various arts for the rehabilitation of disabled children, the correction of difficult teenagers, and readapting children affected by stress, violence, or family disruption; help gifted children;

The New Day grant programme was set up by ROS BANK in 1999. For Russian business it was one of the first initiatives for a nationwide open grant com petition for socially oriented programmes of NGOs helping and supporting children in Russia. The pro gramme is managed by the Russian Mission of the British Charities Aid Foundation (CAF Russia). The programme aims to deliver comprehensive help to children by supporting non governmental, public and municipal organisations and local authorities which work towards the rehabilitation, support and balanced development of children in Russia. The New Day programme is intended to provide the conditions for a qualitative change in children's liv ing standards and overall development, and also to draw society's attention to the problems faced by Russian youngsters.

provide sport rehabilitation for disabled children and support sports classes for difficult teenagers; help orphans and children deprived of parental care and living in public or municipal institutions (orphanages, children's homes and boarding schools); promote the rehabilitation and social integration of homeless children. Being highly relevant, the programme has extend ed its geographical coverage to the whole of Russia, so the programme really can be called Russia wide.

The Deloitte Foundation Extra Mile, Deloitte CIS, Moscow

From 1999 to 2005, 6 grant competitions were held in more than 40 regions of Russia. In 2006 the pro gramme became federal and was extended to the whole of Russia. So far, the programme has sup ported 470 projects costing a total of over US$ 1,600,000. New Day was highly praised and recog nised not only in Russia, but also by foreign charity experts.

The Deloitte Extra Mile tournament is run by Deloitte CIS in Moscow with the purpose of raising money for Downside Up, a non commercial organi sation whose aim is to change the life of Russian children with Down's syndrome for the better. The programme also encourages teamwork and ulti mately increases the employees' involvement in the business.

For example, in 2002 the New York Institute for Research of Charitable Activities named the New

The tournament takes place annually on the last Saturday of July. In the summer of 2008 it was held

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Integrating CSR Principles into Corporate Strategy

for the third time. During the contest teams of par ticipants attempt such events as orienteering, cycling, rafting, climbing, shooting and the obstac le race. The contesting teams of four are freely formed, any office hierarchy being disregarded. Initially, the Extra Mile programme was created only for the company's employees. Over time a need arose to expand the target audience and so the participants were allowed to bring in their friends, and then teams from other companies, Deloitte's clients or partners, were allowed to participate. The programme is financed by raising money through entry fees and personal sponsorship. Fundraising is comprehensive and includes: team entry fee; additional charitable gifts collected by the teams; sponsorship from the companies. During the first three years of the Extra Mile pro gramme, the organisers have increased the number of participants by the same magnitude as the money raised has increased. The percentage of participat ing clients and partners has increased by 20%. Thanks to the money raised by Extra Mile in 2007, Downside Up was able to extend the curator pro gramme for Moscow children with Down's syn drome by taking on additional specialists to super vise 90 newborn babies with Down's syndrome enrolled in the programme during 2007. This home visiting programme is crucial for the child's intellec tual and physical development. Due to Deloitte's continued support, Downside Up is able to provide all of its services for free to Russian families. In 2008 the money raised from Extra Mile exceeded 850,000 roubles.

‘Back to the Future’ Post Cancer Rehabilitation Camp for Children, OJSC Transaero Airlines Transaero Airlines and the non governmental organisation ‘Children’ have been running a post

cancer rehabilitation programme for children called ‘Back to the Future’ for three years (2006 2008). Such a programme is highly relevant as Russia lacks an efficient system of social and psychologi cal rehabilitation for post cancer children. The ‘Back to the Future’ rehabilitation camp is a brand new way of providing post cancer care for children. ‘Back to the Future’ is a family pro gramme covering not only the disabled children, but also their healthy siblings. The programme enjoys close co operation with and methodical support from the Federal Scientific and Clinical Centre for Infantile Haematology, Oncology and Immunology of Roszdrav (the Russian Federal Healthcare Agency). Children in the rehabilitation camp are cared for by a qualified professional team: oncologists, psychologists, role play pedagogues, mentors and social workers. The core of the camp pro gramme is thematic role play based on creative teamwork. Children can also do arts and engage in sport, recreational and cultural leisure events. The closing phase of the programme (August – October) is about assessing the results of the camp's activities and drawing up the project's financial report. A follow up ‘round table’ is orga nised for specialists, regional social security, healthcare and education officials and NGO officers to share their experience. The camp's success largely depends on the infor mation strategy of the programme which involve, among other things, arranging workshops and information events for doctors and parents. Transaero makes the programme known to its part ners and customers, and also encourages its employees to volunteer for it. Since its launch in 2006, the rehabilitation pro gramme has helped over 200 children recovering from oncological and haematologic diseases, and their parents and siblings.

Report on Social Investments in Russia 2008 Integrating CSR Principles into Corporate Strategy

The programme's information and educational activities on child cancer prevention and child rehabilitation in Rostov on Don, Novosibirsk, St. Petersburg and Yakutsk involved 330 people. The project has become sustainable and gained momentum thanks to the united efforts of the business community, the public and non govern mental organisations. The rehabilitation camp programme was included in the disabled children integration target programme of the Social Security Department of Moscow for 2007 2009. Similar camp rehabilitation programmes have emerged in other regions: Novosibirsk, Vladivostok, Khabarovsk, Yakutsk, Rostov on Don and the Kaluga Region. In 2008 the ‘Back to the Future’ rehabilitation camp became a Year of the Family event. The programme is planned to be extended to other cities with child oncological centres. The project will benefit from an anticipated exchange of experience with foreign rehabilitation profes sionals (Germany, USA, Ireland) expected to visit Russia for this purpose. Another promising acti vity of the programme is working with inclusive schools to bring children with oncological and haematological diseases into the education process.

‘Children of Russia’ Charity Fund, Ural Mining and Metallurgical Company The Fund actively fulfils the social objectives of the Ural Mining and Metallurgical Company, and also develops and runs programmes whose goals are fully in line with the government's social poli cy and the national interest with regard to creat ing favourable conditions for children's develop ment. The programmes have been particularly successful in the company's areas of operation, charitable activity having become part of the cor porate culture. With this aim in mind, ‘Children of Russia’ sets up and runs targeted programmes to support the

APPENDIX 4

younger generation, such as ‘Gifted Children’, ‘Aid to Orphans and Children Deprived of Parental Care’ and ‘From Heart to Heart’. Each year the fund organises and supports Russian and international children's tournaments and contests in football, sailing, competitive dance and tennis, basketball, hockey, sambo (unarmed self defence), judo, athletics and other sports in various parts of Russia. It finances 6 7 tourna ments per year. The fund has its own TV company and finances the production and release of children's pro grammes such as ‘5+’, ‘Good News’ and ‘Multicoloured Umbrella’ which are broadcast by such TV companies as ‘Oblastnoe Television’ (Ekaterinburg) and ‘Telekon’ (Nizhniy Tagil, Sverdlovsk Region). The fund publishes its own children's educational magazine called ‘Quiet Minute’ which has a circulation of 20,000. The total budget for the ‘Children of Russia’ Charity Fund's programmes in 1999 2008 was 113.5 mln roubles (of which 37.7 mln roubles are targeted donations for the repair and reconstruction of the Verkhnepyshminsky orphanage). The charity also promotes the company's strate gic development objectives. By investing in the care of the younger generation, raising the cultur al level of children, promoting their sporting, artis tic and intellectual abilities, discovering and developing their talents, fighting infant mortality and facilitating the social adaptation of orphans, the company is creating a sound environment and favourable social climate in the cities where it operates, at the same time bringing up its future qualified workforce. The social effect of charity is not always embodied in specific results; it is not tangible. But, beyond any doubt, the effect exists, as testified by people's responses, gratitude and mail, as well asthe moral satisfaction of the benefactors themselves.

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ETHICAL BUSINESS CONDUCT University of Personal Finance, OJSC URSA Bank To raise the public awareness of banking services, URSA Bank has developed a personal finance management educational programme for retired and soon to retire employees. The main objective of the University of Personal Finance is to foster financial literacy, promote trust in commercial banks and facilitate interaction between the bank and the users of its services. The programme offers lectures and seminars on banking products and technologies, as well as expert consultations on pension provision and other services across the regional network of URSA Bank. Pensioners have greater difficulty dealing with financial issues because of their lack of experi ence. With scant understanding of banking mat ters, they miss out on safe and profitable ways to grow their capital. At the classes of the University bank employees explain the features of those financial services which are of interest to senior citi zens. They spell out the types of deposits and the interest accrual procedure, how to receive their pensions via the bank, how to transfer money, pay for services using ATMs or take out a loan. This knowledge enables senior citizens to manage their personal finances efficiently and opens more opportunities to live an active life. Educational seminars on banking products and servi ces were started in Novosibirsk in 2003 and aroused much interest among the elderly. Now the pro gramme's geography has expanded. 2008 saw approximately 5,000 people from Novosibirsk, Irkutsk, Novokuznetsk, Tomsk, Samara, Khabarovsk, Ekaterinburg, Tyumen, Chelyabinsk and other cities taking part, the programme's budget being 1,643,000 roubles. At the end of the classes, everyone received a certificate of achievement and instructional materi als on banking products and services. The seminars end with special evening sessions where pensioners share their impressions and talk about the useful advice they received during their classes.

Today, improving financial literacy among the pub lic is one of the foremost issues discussed at a national level. Therefore URSA Bank plans to con tinue developing the programme. For 2009 the seminar structure will be revised and the number of participants will grow substantially.

Supplier Relations, OJSC Vyksa Steel Works (a Part of the United Metallurgical Company (UMC)) Vyksa Steel Works (VSW) has developed a special programme to improve relations with its suppliers. Suppliers are identified through a tender process. The company informs its suppliers about tenders on an arm's length basis. VSW has developed a set of supplier selection cri teria: terms of delivery, positive cooperation record, possession of international certificates of quality, availability of product control and availabili ty of sample shipments for assessment. To optimise the relationship, the plant signs quar terly agreements with suppliers to fix prices and shipments, and negotiates with them monthly 10 day delivery schedules. Every day the suppliers electronically provide a report on shipments to the works. Twice a year coordination panels are held with the leading pipe metal suppliers to discuss the progress of joint work, the quality of the shipped metal roll, and development of the production of new types of metal roll. Russian and foreign metal suppliers are subject to selective external audit in order to check whether their product quality and quality management sys tems meet VSW requirements. Such supplier relationship management enables VSW to cut its costs and ensure its customers receive products of the required quality at an affordable price.

Report on Social Investments in Russia 2008 Integrating CSR Principles into Corporate Strategy

APPENDIX 4

ENVIRONMENTAL PROTECTION Ecological Safety and Environment Protection, Renova Orgsintez Renova Orgsintez takes systematic action to enable its chemical business subsidiaries to raise their health & safety and environmental (HSE) stan dards, and to improve their products and produc tion processes with regard to their impact on health and the environment throughout the whole life cycle. The company focuses on the issues of resource conservation and minimisation of waste. The best international standards (ISO 14000) have already been or are soon to be implemented, and less hazardous modern technologies are being intro duced. Renova Orgsintez analyses and controls how its enterprises achieve their targets as part of its monitoring of key indicators specified by major international HSE standards, and facilitates the adoption by its enterprises of official policies in these areas. Renova Orgsintez is currently planning to con struct a new facility for the production of caustic soda and chlorine based on the most advanced and environmentally friendly electromembrane process. Thanks to this ecotechnology, Japan closed down all of its mercury cathode electro lysis plants back in 1986. Russia currently has only one plant using this up to date process which is compliant with global environmental standards. Being highly socially oriented, Renova Orgsintez continues to develop the production of polycrys talline silicon, the key to the future of energy gene ration – solar photo energy. Using light and heat from the sun is a totally environmentally clean, sim ple and natural, as well as being the most demo cratic, way to obtain all forms of the energy we need.

Renova Orgsintez and its subsidiary businesses have proved their commitment to their declared goals by joining the Responsible Care global chemical industry initiative. This international initiative is certain to become a precondition for chemical enterprises to maintain their market positions. It is a management pattern and set of guidelines which establish a production culture and sense of responsibility for Russian manu facturers towards current and future genera tions. This project enables Renova Orgsintez to work, in close cooperation with government authorities and business community represen tatives, on the issues of technical regulation, development of HSE guidelines and standards for chemical enterprises, and harmonising Russian standards with those of the Responsible Care initiative. Ecological and industrial safety and HSE commit ment is viewed as a pledge of competitiveness for the Renova Orgsintez group of companies. The company won the national ‘Environment Protection Leader 2007’ award, which is a sign of the high appreciation of its efforts in this area.

Special Mining & Environmental Monitoring Project, OJSC Siberian Coal Energy Company A special mining and environmental monitoring project has been developed and is run by the Siberian Coal Energy Company to assess the impact of the Borodinsky open pit coal mine (Krasnoyarsk Territory) upon the environment – air, soil, water, plants and wildlife – and to plan the stages for a series of corresponding environmental programmes. Up to 70% of all research is carried out by specia lists from the integrated industrial laboratory of the Borodinsky mine. They monitor the status of mine ral resources by recording coal reserves, mining

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volume and the extent and quality of the extraction. They also monitor the ground surface by surveying the slopes and high walls of the mines and internal and external dumps, and they monitor quarry and surface water, as well as the state of the air. The environmental project also requires types of monitoring which can only be carried out by spe cialist organisations, for example monitoring plant and animal life. Thus, the fertility, quantity and diversity of wildlife are studied by the V.N. Sukachev Institute of Forestry, a Siberian Branch of the Russian Academy of Sciences; bottom sedi ments are studied by the ‘Solyanskaya Station of the Agrochemical Service’ Federal State Institution. In 2007 the status of ichthyofauna was checked through ichthyological research of the River Barga and a pond near the Glubokovo settle ment. This work was carried out by the Scientific and Research Institute of the Ecology of Fishery Water Bodies. The sanitary protection zone is monitored both by the Borodinsky coal mine's integrated sanitary and industrial laboratory and by the sanitary and epi demiological stations of Kansk and Krasnoyarsk. The radiological study of water is performed by the FSI Centre of Hygiene and Epidemiology for the Krasnoyarsk Territory. All works which come under the project are costly, but the company considers such expenses neces sary since protection of the environment and care for the future of the host region is a first priority task to be addressed today, not tomorrow.

‘Green Watch’, UC RUSAL The main goal of the ‘Green Watch’ programme is to promote the environmental training of school children, to bring them up to feel responsible for their native area, and to give them a better appreci ation of nature. The Public Chamber of the Russian Federation noted in its 2007 Civil Society Progress Report that

the environment had only started to receive sup port from the business community, ‘RUSAL being the pioneer’. The ‘Green Watch’ programme is a clear testimony to that. In 2007 this environmental movement united more than 18,000 people in eight cities of Russia and Ukraine. They took part in 150 environmental activi ties. Such activities are carried out in partnership with regional environmental NGOs and research and educational institutions which organise the work of volunteers from schools. The programme also focuses on ‘small scale’ ecology in a district, town or region, whereby resi dents are encouraged to take part in environmental activities. Clearly, school children alone cannot keep a whole town clean. So one of the tasks addressed by the young environmentalists is to inform the local community of their findings in order to unite environmental efforts and involve local residents in environmental activities. The contest takes part in the following areas: Irkutsk region (Bratsk), Krasnoyarsk territory (Achinsk, Krasnoyarsk), Republic of Khakassia (Abakan, Sayanogorsk), Leningrad region (Bauxitogorsk), Kemerovo region (Novokuznetsk), and Ukraine (Mykolayiv). The main contest categories are as follows: education and raising awareness, involving the public in micro ecology issues; preservation of natural diversity (animals, plants, springs etc.); organising ecological forums, activities, festivals and (photo ) exhibitions, dissemination of environmental knowledge and experience; ecological expeditions and environmental exploration; organising publicly beneficial volunteer activities with children and teenagers in the areas of ecology and environment protection. In April 2008, RUSAL announced 30 winners of the

Report on Social Investments in Russia 2008 Integrating CSR Principles into Corporate Strategy

second ‘Green Watch’ contest. The total amount of grants awarded was 1.5 mln roubles.

Safe production, OJSC ‘TNK ВР Management’ One of the most important aspects of TNK ВР's environmental activities is equipment integrity management which helps to prevent hydrocar bon and other pollution caused by pipeline leak age. Integrity management is a continuous process of testing the operability of equipment during design, use and maintenance. The key aspect of the process is to maintain pipeline integrity. TNK ВР has adopted a pipeline reconstruction programme to replace corroded pipelines and pro tect at risk pipelines from corrosion. The pipeline integrity and surface operating reliability facilities programme has received US$ 1.7 bln, of which US$ 650 mln is for the replacement of 4,500 km of the most worn out pipelines. To enhance pipeline system durability and safety, the company widely uses anticorrodant injections which can reduce leakages by around 90%. Now a total of over 7,500 km of pipelines are inhibitor protected, but in 2009 the coverage will reach 10,000 km. The company consistently and com prehensively addresses external and internal cor rosion threats and works to ensure the mechani cal integrity of pipelines. As part of that, the next 5 10 years will see a staged implementation of the Corporate Standard of Integrity Management approved in January 2007. This provides for the systematic detection and continuous mitigation of current risks. Significant funds are spent on tackling the prob lem of storage and recycling of liquid and solid oily waste. All oil storage pits with perennial waste pools have been removed from the Saratov refinery. This has palpably improved the ecologi cal situation at the refinery as there are now no

APPENDIX 4

pollutants on the open surfaces of the storage facilities. TNK Nyagan has put into operation an oily industrial waste storage facility enabling the collection, accumulation and recycling of liquid and solid oily waste and polluted snow. In 2007 the facility returned 45,000 cubic metres of oily liquid to the oil gathering system. TNK ВР production facilities undergo compre hensive improvements to prevent accidental pol lution of water. Saratov Refinery was the first industrial entity in its region to deploy sewage water UV decontamination technology making the water safe for the Volga basin. Furthermore, a 3 km drain has been built at the refinery to inter cept ground water streams to the east and south of the refinery and direct them to the sewage facilities. Thanks to this the river gets back treat ed and oxygen enriched water. TNK Nyagan runs a special programme for building oil removers on minor rivers, and each year at the time of snow melt floods sets up absorbant slick booms on streams and rivers.

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Integrating CSR Principles into Corporate Strategy

APPENDIX 5

APPENDIX 5.

Organisations and companies which participated in the Social Investment Index of Russian Business 20087 N

Company

Industry

Position

Name

1 2

Aeroflot Don

Transport

General Director

Kritskiy Mikhail Stepanovich

Rostov on Don

ALCON Development

Construction

General Director

Sorokin Alexander Ivanovich

Moscow

ALROSA

Metallurgy

President

Vybornov Sergey Alexandrovich

Republic of Sakha (Yakutia)

Arkhangelsk P&PM

Wood Processing

General Director

Beloglazov Vladimir Ivanovich

Arkhangelsk Region

Arnest

Consumer Goods

General Director

Karaulov Evgeniy Ivanovich

Stavropol Territory

Audit Delo

Financial Sector

General Director

Akulova Anna Petrovna

Irkutsk

Autoline Group

Transport

Chairman of the Board

Muzyrya Nikita Igorevich

Moscow

Baltika Breweries

Consumer Goods

President

Artemiev Anton Olegovich

St. Petersburg

Basic Element

Financial Sector

General Director

Moldazhanova Gulzhan Talalovna

Moscow

CB Solidarnost

Financial Sector

President

Sinitsyn Oleg Yurievich

Samara

Centre of Precision Mechanical Processing

Mechanical Engineering

Director

Nesgovorov Alexey Vladimirovich

Tomsk

Chelyabenergo

Power Industry

Deputy General Director of IDGC of Urals, JSC â&#x20AC;&#x201C; Director of Chelyabenergo

Butakov Igor Vladimirovich

Chelyabinsk

Chelyabinsk Tractor Plant URALTRAC

Mechanical Engineering

General Director

Platonov Valeriy Mikhailovich

Chelyabinsk

ChTPZ Group

Metallurgy

Director, Chelyabinsk Division

Andryushchenko Andrey Nikolaevich

Commercial Port of Vladivostok

Transport

General Director

Pertsev Vyacheslav Mikhailovich

Vladivostok

Comstar United Telesystems

Telecommunications

President

Pridantsev Sergey Vladimirovich

Moscow

CONSORT Consulting Group

Professional Services

Chairman of the Board

Bogdanov Mikhail Yurievich

Moscow

Deloitte CIS

Professional Services

General Director

David Pearson

Moscow

EUROCEMENT Group

Construction

President

Skorohod Mikhail Anatolievich

Moscow

EuroChem MCC

Chemical Industry

General Director

Strezhnev Dmitriy Stepanovich

Moscow

FIA BANK

Financial Sector

Chairman of the Board

Voloshin Anatoliy Porfirievich

Togliatti

Finance Academy under the Government of the Russian Federation

Professional Services

Rector

Eskindarov Mikhail Abdurakhmanovich

Moscow

Flour Mill

Consumer Goods

General Director

Potapov Sergey Stepanovich

Tver

Gavrilov Yam Machine Building Plant AGAT

Mechanical Engineering

General Director

Korytov Vladimir Nikolaevich

Yaroslavl Region

Globus Leasing

Financial Sector

General Director

Kurtsman Boris Efimovich

St. Petersburg

7. Data is given as of 1 July 2008

Region

Chelyabinsk

Report on Social Investments in Russia 2008

Integrating CSR Principles into Corporate Strategy

Services

President and Chairman of the Board

APPENDIX 5

GMR. Planet of Hospitality

Elashvili Merab Isakovich

Moscow

Gorodskoy Supermarket

Retail

General Director

Sadovin Vladimir Albertovich

Moscow

Gulidov Krasnoyarsk Non Ferrous Metals Plant

Metallurgy

General Director

Tikhov Igor Vladimirovich

Krasnoyarsk

Highland Gold Mining

Metallurgy

Managing Director

Henry Horne

Moscow

IES EnergoStroyEngineering Construction

General Director

Suvorov Sergey Alexanderovich

Moscow

Integrated Energy Systems Holding Company

Power Industry

President

Slobodin Mikhail Yurievich

Moscow

Interregional Volga Radio Telecommunication Company (SMARTS)

Telecommunications

General Director

Girev Andrey Vitalievich

Samara

Izoplit

Wood Processing

General Director

Kudinov Evgeniy Dmitrievich

Kursk Region

Joint Stock Insurance Company GEFEST

Financial Sector

General Director

Millerman Alexander Samuilovich

Moscow

JSCB ROSBANK

Financial Sector

Chairman of the Board

Popov Alexander Vladimirovich

Moscow

JSFC Sistema

Financial Sector

Chairman of the Board

Evtushenkov Vladimir Petrovich

Moscow

KAMAZ

Mechanical Engineering

General Director

Kogogin Sergey Anatolievich

Tatarstan

Kamensk Uralsky Non Ferrous Metal Processing Plant

Metallurgy

General Director

Makhmutov Farit Gashimovich

Sverdlovsk Region

KuibyshevAzot

Chemical Industry

General Director

Gerasimenko Viktor Ivanovich

Togliatti

Kursk Nuclear Power Plant

Power Industry

Deputy General Director Slepokon Yuriy Ivanovich of Energoatom and Director of Kursk Nuclear Power Plant (branch of Energoatom)

Kursk Region

Kuzbassenergo

Power Industry

General Director

Mikhailov Sergey Nikolaevich

Kemerovo

LUKOIL

Fuel Industry

President

Alekperov Vagit Yusufovich

Moscow

Magnezit Plant

Metallurgy

General Director

Anikeevich Igor Gennadievich

Chelyabinsk Region

Managing Company Sakhalinugol

Fuel Industry

General Director

Grishko Alexander Ivanovich

Sakhalin Region

MDM Bank

Financial Sector

Chairman of the Board

Michel Perhirin

Moscow

Military Industrial Corporation NPO Mashinostroyenia

Mechanical Engineering

General Director and Chief Designer

Leonov Alexander Georgievich

Moscow Region

MMC Norilsk Nickel

Metallurgy

General Director

Morozov Denis Stanislavovich

Moscow

Mobile TeleSystems

Telecommunications

President

Shamolin Mikhail Valerievich

Moscow

Moscow Central Depository Financial Sector

Chairman of the Board

Agafonova Nataliya Viktorovna

Moscow

Moscow River Shipping Company

Transport

General Director

Anisimov Konstantin Olegovich

Moscow

Mospromostroy

Construction

General Director

Guretskiy Boris Osherovich

Moscow

Motovilikha Plants

Mechanical Engineering

General Director

Kostin Ivan Mikhailovich

Perm

North Onega Bauxite Mine Metallurgy

General Director

Chernov Vladimir Valentinovich

Arkhangelsk Region

North West Telecom

Telecommunications

General Director

Akulich Vladimir Alexandrovich

Novgorodenergo

Power Industry

Director of Novgorodenergo, Chistyakov Vladimir Vladimirovich JSC IDGC of the North West

Veliky Novgorod

NOVOGOR Prikamye

Services

Chief Managing Director

Glazkov Vladimir Viktorovich

Perm

NPO Saturn

Mechanical Engineering

General Director

Lastochkin Yuriy Vasilievich

Yaroslavl Region

OGK 4

Power Industry

General Director

Kitashev Andrey Vladimirovich

Moscow

OGK 5

Power Industry

General Director

Kopsov Anatoliy Yakovlevich

Moscow

Onezhsky Tractor Plant

Mechanical Engineering

Executive Director

Kolesnikov Mikhail Viktorovich

Karelia Republic

Pharmacy Chain 36.6

Retail

President

Jere Calmes

Moscow

St. Petersburg

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Integrating CSR Principles into Corporate Strategy

APPENDIX 5

Polymetal Management Company

Renova Orgsintez

Chemical Industry

General Director

Kuznetsov Yaroslav Evgenievich

Moscow

Rosenergoatom

Power Industry

Acting General Director

Lokshin Alexander Маrkovich

Moscow

Rosneft

Fuel Industry

President

Bogdanchikov Sergey Mikhailovich Moscow

Roszheldorproject

Construction

General Director

Mekhov Viktor Borisovich

Moscow

RTI Systems

Mechanical Engineering

General Director

Lobuzko Vyacheslav Vladimirovich

Moscow

RUSAL Global Management B.V.

Metallurgy

General Director

Bulygin Alexander Stanislavovich

Moscow

RussNeft

Fuel Industry

Acting President

Gordeev Oleg Georgievich

Moscow

RZD (Russian Railways)

Transport

President

Yakunin Vladimir Ivanovich

Moscow

SABMiller RUS

Consumer Goods

General Director

James Wilson

Moscow

Sayanskchemplast

Chemical Industry

General Director

Melnik Nikolay Viktorovich

Irkutsk Region

SCALA (CIS) Ltd

Professional Services

Regional Director

Sidorova Natalia Leonidovna

Moscow

Severstal

Metallurgy

General Director

Mordashov Alexey Alexandrovich

Moscow

Shchekinoazot

Chemical Industry

President

Sokol Boris Alexandrovich

Tula Region

Siberian Coal Energy Company

Fuel Industry

General Director

Rashevskiy Vladimir Valerievich

Moscow

Sibnefteavtomatika

Mechanical Engineering

General Director

Abramov Genrikh Saakovich

Tyumen

SIBUR Holding

Chemical Industry

President of SIBUR LLC

Konov Dmitriy Vladimirovich

Moscow

SOK Group

Mechanical Engineering

President

Savchenkov Alexey Anatolievich

Samara

Sportmaster

Retail

General Director

Strakhov Leonid Borisovich

Moscow

Staraya Ploschad Group

Professional Services

President

Kolosova Svetlana Valentinovna

Moscow

Tatneft

Fuel Industry

General Director

Takhautdinov Shafagat Fakhrazovich

Tatarstan

TGC 2

Power Industry

General Director

Vagner Andrey Alexandrovich

Yaroslavl

TGC 5

Power Industry

General Director

Smelov Eduard Yurievich

Kirov

TGC 6

Power Industry

General Director

Kramarenko Vyacheslav Mikhailovich Nizhni Novgorod

TGC 9

Power Industry

General Director

Makarov Andrey Yurievich

The ROEL Group

Professional Services

General Director

Dorokhin Vladimir Vasilievich

Moscow

TNK BP

Fuel Industry

President and Chief Managing Director

Robert Dudley

Moscow

Transaero Airlines

Transport

General Director

Pleshakova Olga Alexandrovna

Moscow

TRIZA Exclusive Executive Search Group

Professional Services

President

Sedlenek Vladislav Arturovich

Moscow

UMMC Holding

Metallurgy

General Director

Kozitsyn Andrey Anatolievich

Sverdlovsk Region

United Metallurgical Company

Metallurgy

President

Markin Vladimir Stepanovich

Moscow

Uralchimplast

Chemical Industry

General Director, ZAO Uralchimplast Management Company, Chairman of the Board, OJSC Uralchimplast

Gerdt Alexander Emmanuilovich

Sverdlovsk Region

UralPlatinumHolding

Metallurgy

General Director

Shutov Andrey Nikolaevich

Moscow

Uralsvyazinform

Telecommunications

General Director

Ufimkin Anatoliy Yakovlevich

Ekaterinburg

URSA Bank

Financial Sector

General Director

Brel Kirill Vladimirovich

Novosibirsk

UTair Aviation

Transport

General Director

Martirosov Andrey Zarmenovich

Tyumen Region

Vnesheconombank

Financial Sector

Chairman

Dmitriev Vladimir Alexandrovich

Moscow

Vodokanal, St. Petersburg

Services

General Director

Karmazinov Felix Vladimirovich

St. Petersburg

Telecommunications

General Director

Omelchenko Sergey Valerievich

Nizhni Novgorod

101 VSMPO AVISMA Corporation Metallurgy

General Director

Tetyukhin Vladislav Valentinovich

Sverdlovsk Region

102 Х5 Retail Group

Chief Executive Director

Khasis Lev Aronovich

Moscow

100 VolgaTelecom

Metallurgy

Retail

General Director

Nesis Vitaliy Natanovich

St. Petersburg

Perm

Report on Social Investments in Russia 2008 Integrating CSR Principles into Corporate Strategy

The Russian Managers' Association Committee for Corporate Responsibility

The Committee is Russia's leading expert panel on corporate responsibility. Its main objective is to achieve common understanding and common approaches in implementing various forms of dia logue on CSR between the business community, government and society. The Committee for Corporate Responsibility has always been chaired by Olga Yurievna Golodets, President of the All Russia Cross Industry Union of Employers â&#x20AC;&#x201C; Producers of Nickel and Precious Metals. The Committee argues that the business commu nity needs to achieve common CSR approaches: based on the aims of stable socio economic development of the country and sharing responsi bility for this development; taking into consideration the objective processes of modern business development and corporate governance systems based on responsibility and quality; recognising the need for the business community to determine CSR priorities for setting up, in con junction with the government and civil society insti tutions, mechanisms for cooperation, tools and procedures for resolving acute social problems within businesses and their areas of operation; understanding the existing problems of global and national development and taking into account the international community's initiatives which seek to develop partnerships between the government and the business community and between employers and employees. The Committee works in the following areas: forming and promoting a consolidated position of the business community on social responsibility;

studying global and Russian best practices of CSR policy implementation; exchange of advanced CSR strategy experience within the senior manager community in Russia and abroad; developing strategic recommendations to the government and private sector on addressing social policy issues; setting up dialogue between business, authori ties and society for efficient implementation of social and national projects intended to develop a civil society. The Committee addresses the following tasks: specifying the role business and government play in the development of a civil society; providing methodological support for CSR projects and social reporting; maintaining a database of initiatives and projects requiring the joint efforts of business, society and government; promoting information support for the Committee and managerial community; promoting co operation with the state authori ties.

For any queries on the activities of the Russian Managers Association's Committee for Corporate Responsibility, please contact Anita Makedontseva, Director of the Strategic Communications Department at +7 (499) 271 34 41/42 or a.makedontseva@amr.ru, or visit the Russian Managers Association's website: www.amr.ru.

Report on Social Investments in Russia 2008 Integrating CSR Principles into Corporate Strategy

The UN Global Compact is the world's largest global voluntary initiative promoting responsible corporate citizenship through companies' compliance with ten fundamental principles in the areas of human rights, labour, environment and anti corruption. Since 2000, when the UN first announced this initiative, it has been joined by over 4,000 participants from over 100 countries: companies, business communities, public agencies, NGOs and professional associa tions, including Russian names. The Global Compact promulgates the main prin ciples of responsible corporate conduct in the areas of human rights, labour, environment and anti corruption. The Global Compact is not a means to control or monitor companies' activities or governance systems, but calls for public social reporting and transparency. Joining the Global Compact means the company endorses the belief that responsible business practice promotes confi dence and social capital contributing to compre hensive development and sustainability of the global market and creation of prosperous and suc cessful societies. The Global Compact is a purely voluntary initiative seeking to integrate the ten principles into business activities worldwide and encourage actions support ing the broader development objectives of the UN. The UN Global Compact's ten principles enjoy uni versal consensus and are derived from The Universal Declaration of Human Rights, The International Labour Organisation's Declaration on Fundamental Principles and Rights at Work, The Rio Declaration on Environment and Development and The United Nations Convention Against Corruption: Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights.

Principle 2: Businesses should make sure that they are not complicit in human rights abuses. Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining. Principle 4: Businesses should uphold the elimina tion of all forms of forced and compulsory labour. Principle 5: Businesses should uphold the effective abolition of child labour. Principle 6: Businesses should uphold the elimina tion of discrimination in respect of employment and occupation. Principle 7: Businesses should support a precau tionary approach to environmental challenges. Principle 8: Businesses should undertake initiatives to promote greater environmental responsibility. Principle 9: Businesses should encourage the development and diffusion of environmentally friendly technologies. Principle 10: Businesses should work against cor ruption in all its forms, including extortion and bribery.

More information on how to join the UN Global Compact and the list of the Russian national network companies can be found at www.unglobalcompact.org. For any queries related to participation in the Global Compact, please contact Evgeny Levkin on +7 495 787 21 76 or evgeny.levkin@undp.org

Report on Social Investments in Russia 2008 Integrating CSR Principles into Corporate Strategy

The St. Petersburg State University's Graduate School of Management was established in 2007 on the platform of the university's School of Management (est. 1993) under the Priority National Project ‘Education’ with a mission to cre ate a world class Russian business school. GSOM offers a diverse portfolio of modern business edu cational programmes: МВА, Master, Bachelor and Post Graduate Degrees as well as corporate pro grammes. GSOM SPbSU is the only Russian name in the major associations of the world's leading business schools: Community of European Management Schools (CEMS) and Partnership in International Management (PIM); two degree pro grammes (МВА and Bachelor) have prestigious international accreditations. GSOM SPbSU is a recognised Russian manage ment research centre. It publishes two leading sci

entific journals (The Russian Management Journal and SPbSU Bulletin. Management Series) and runs a number of international research centres. One of them is the Center for Corporate Social Responsibility, which actively co operates with such leading international professional associations and research entities as the European Academy of Business in Society (EABIS), Caux Round Table, the Globally Responsible Leadership Initiative (GRLI) and the European Business Ethics Network (EBEN). The centre focuses on research, knowledge dissemination in the business community, and teaching its core courses through the main pro grammes of GSOM SPbSU.

More information on GSOM SPbSU and the Center for Corporate Social Responsibility can be found at www.gsom.pu.ru/en/csr.

British Embassy Moscow

STRATEGIC PROGRAMME FUND OF THE BRITISH EMBASSY

The Strategic Programme Fund is the main pro gramme budget of the Foreign & Commonwealth Office. The fund's activities contribute towards the British Government's International Priorities. The Low Carbon, High Growth Programme is one of the fund's activities in 22 countries of the world. The Programme seeks to support a high economic growth rate and avoid climate change.

In Russia, specifically, the Embassy runs projects intended to improve and promote financial and banking sector reforms, corporate social responsi bility, corporate governance, anti corruption, ener gy security and trade policy. Further information on programme activities and project tenders may be found at the official website for the British Embassy in Russia: http://ukinrussia.fco.gov.uk.

FEEDBACK

You are kindly invited to discuss the conclusions and recom mendations of the â&#x20AC;&#x2DC;Report on Social Investments in Russia 2008â&#x20AC;&#x2122; interactively at the Russian Managers Association's website: www.amr.ru.

We welcome your expert views, opinions and comments on any of the statements, conclusions and recommendations of the report, and also constructive proposals on the furtherance of the CSR agenda in Russia.

For any further queries on this project please contact Ekaterina Ivanova, Director of the Strategic Studies Department, The Russian Managers Association at +7 (499) 271 34 41/42 or k.ivanova@amr.ru.

Report on Social Investments in Russia 2008 Integrating CSR Principles into Corporate Strategy

United Nations Development Programme

Russian Managers Association Floor 15, Tower ÂŤBÂť, Moscow City Krasnopresnenskaya naberezhnaya, 18 123317, Moscow, Russian Federation Tel: + 7 (499) 271 3441, 271 3442 Fax: + 7 (499) 271 3440 info@amr.ru www.amr.ru

Russia

9, Leontyevsky Lane, 125009, Moscow, Russian Federation Tel: +7 (495) 787 2100 Fax: +7 (495) 787 2101 office@undp.ru www.undp.ru