Steve McCoy, Counterpoint
1. Why do companies seek your services? Is their action triggered by specific incident(s) or are they addressing long-term issues?
There are many different reasons, but one of the more significant drivers triggering action in Asia are the requirements, guidelines and standards put in place by governments and stock exchanges.
In Malaysia, for example, all public listed companies are required to disclose their Corporate Social Responsibility (CSR) activities or practices, and of their subsidiaries, as part of their Listing Requirements. A similar system operates for companies listed on the Australian and Thailand stock exchanges.
Most governments in the region have drawn up CSR guidelines with the aim of encouraging the corporate sector to look beyond a single bottom line. The general sentiments expressed by Singapore’s Minister for Manpower’s for companies ‘to become more aware of CSR and to implement CSR strategies that focus on the significant challenges that we, as a society, will face in the future are shared throughout the region. The favours and emphases, though, are different.
China urges industrial corporations to commit to sustainable development in four sectors: management, execution, information and supervision. In Japan and Korea there has been an emphasis on reporting, with Japanese companies particularly focusing on environmental initiatives (driven by the Law Concerning Promotion of Environmental Consideration in Business Activities 2004). Thailand has focused on governance issues.
Sri Lanka has linked CSR initiatives to peace in the country. Bangladesh has introduced a series of tax exemptions for companies engaging in CSR. Vietnam has promoted corporate efforts to improve labour conditions and protect the environment as part of the Vietnam Agenda 21 programme in partnership with the United Nations Development Programme and the Chamber of Commerce. Understanding of CSR or sustainability is still growing in Pakistan, Cambodia and Laos.
Indonesia, with its Law No 40/2007 for all Limited Liability Companies (subsequently amended to Article 47 for ‘natural resources’ companies), and the Philippines, with its 2009 Corporate Social Responsibility Act, have somewhat controversially mandated CSR.
India seems to heading in the same direction, with Corporate Affairs Minister Salman Khurshid recently lamenting the slow rate of progress in Indian companies, “You can't hope that everything will work without a basic legislative line drawn”. This idea of mandatory social obligation for the private sector has not been welcomed by corporate India and the issue is up for review. While he emphasised that the government did not want to move toward becoming “moral policemen” for businesses, he added that if the corporate sector fails to “convert CSR from a philosophy to real deliverables” intervention would be inevitable.
Many politicians in the region seem to believe that regulation is important for shaping a sustainable development framework and many companies, as a consequence, naturally prefer to take a wait-and-see approach in anticipation of further legislation. To some extent this reflects a misunderstanding of the role of CSR or corporate sustainability.
The complex of relevant issues and priorities related to business model, strategy and impact are industry and often, locality specific, and good sustainability strategies always require creative thinking and innovation beyond mere check-box ticking. While mandatory reporting or disclosure requirements are a positive step, good CSR and corporate sustainability cannot be primarily compliance driven.
Another significant driver triggering action is the sheer number of discussions, studies, articles, surveys, and conferences about CSR and sustainability. It is difficult to be in business today without some sense that the commercial enterprise, and the assumptions that go with it, is at a turning point.
There has been, over the pasts few years, a progressive sensitisation to systems and dynamics of governance beyond government, regulation beyond law, and responsiveness beyond responsibility, with companies learning quickly that these issues are crucial in establishing a brand, influencing its reputation and creating trust beyond the regulatory framework it operates within.
For example this year, Accenture, McKinsey and Deloitte all reported a clear recognition amongst business leaders that sustainability has become critical to their success, and that their companies actively seek opportunities to invest in sustainability initiatives despite the economic downturn. These are mirrored by surveys of both employees and consumers by Cone, Harris, Brighter Planet and the Center for Creative Leadership who made it clear that what companies are and are not doing with regard to social and environmental issues matters to them.
It is difficult to carry on with business-as-usual with the weight of this sort of information coming at you from all sides. There has been a growing awareness of the business case for sustainability, and this will continue to grow in my opinion because ultimately, there is no business case for unsustainability!
2. When companies consult with you, do they have a clear-cut idea of why they are seeking you out?
Yes and no. Sometimes they have specific training requests or projects like helping them with their data gathering and reporting or helping them engage their supply chain, but even when they do, conversations often go beyond their initial expectations. This is not surprising because the sustainability or CSR movement is very much a work in progress and there is still much confusion.
No consensus yet exists about an appropriate taxonomy for CSR. Some challenge the suitability of each element of the compound phrase, “corporate social responsibility” and more often than not, “corporate social responsibility” is used interchangeably with terms like “corporate citizenship”, “responsible business”, “triple bottom line” responsibility, and corporate sustainability (the term “sustainability” has multiple possible meanings - I found around 600 with the help of Google!).
The McKinsey study showed that 20 percent of executives said their companies didn’t have a clear definition of sustainability. Among those that do, the definition varies: 55 percent define sustainability as the management of issues related to the environment (for example, greenhouse gas emissions, energy efficiency, waste management, green-product development, and water conservation).
Another 48 percent said it includes the management of governance issues (such as complying with regulations, maintaining ethical practices, and meeting accepted industry standards), and 41 percent said it includes the management of social issues (for instance, working conditions and labor standards).
This confusion has somewhat complicated the already challenging process of embedding sustainability into corporate strategy, and I’ve found Daniel Frankllin’s (executive editor of The Economist) quote to be a fair assessment on the general state of play – “Many companies pretend that their sustainability strategy runs deeper than it really does.
It has become almost obligatory for executives to claim that CSR has become ‘part of the DNA’. In truth, the activities that go under the sustainability banner are a hotchpotch of pet projects, at best, tenuously related to core business.”
The Deloitte report pointed out that there is a clear gap between their leaders’ aspirations with regard to sustainability and the way that sustainability is enabled within their organisations. While the vast majority of organisations approach sustainability from a broad set of principles, implementation was generally focused on very few activities. It goes on to say that such a gap exists is hardly surprising considering the challenges involved in building the infrastructure to address sustainability issues.
At Counterpoint, we feel the difficulty many companies have with incorporating CR into company DNA or relating sustainability initiatives to core business is often a function of the scale of sustainability. Timeframes are longer than business-as-usual expectations, and its scope - ranging from resource security to market share to social equity to biological diversity - can make it difficult to organise thinking and manage interrelated processes.
Returns from sustainability, however, are directly related to the same challenges. While most companies can find a point of entry somewhere within the sustainability agenda, a piecemeal or bolt-on approach with shorter-term goals may secure some public relations gains, but will inevitably result in lower long-term competitive advantage returns.
The value of sustainability to a company is directly proportional to its ability to develop a vision that is clear, relevant, meaningful and shared; engage its workforce and value chain for commitment to innovation and integration; set performance indicators, and align them across business units and activity streams; embed a feedback and management system to track competitive advantage investment returns; and narrate the whole process compellingly to stakeholders.
3. Does pressure from stakeholders (customers, employees, shareholders) often push companies to develop better CSR?
In Asia, pressure from customers, employees and shareholders is not as strong as it is in North America or Europe, but as awareness of climate change, ecological degradation, natural capital depletion and the power of stakeholders to influence corporate behaviour grows, stakeholder influence will become more of a factor than it is today.
This, however, is not necessarily a good thing for corporations. The ability of a business to maximise competitive advantage gains from a corporate sustainability strategy is directly related, in our view, to the leadership it is able to exhibit. Leadership, by definition, is being proactive in dealing with the ecological, social, and economic realities of doing business in the 21st century rather than just being reactive to stakeholder concerns and pressures.
Although increasing regulation and increasing stakeholder pressure can influence corporate behaviour and be good for the planet, it is not in an enterprise’s long-term interest for its business strategy to be entirely driven in this way.
Personally for example, I find it disappointing whenever I see the sustainability or CSR profile of a multinational company being quite different in Asia to the profile the company has in, say, Europe, purely, I presume, because Asian stakeholder awareness or empowerment is not quite what it is in Europe. Customers and clients are increasingly adept at recognising authentic messaging.
The Business for Social Responsibility report on Greenwash noted that consumers are able to recognise false or misleading information and tend to treat environmental messaging especially, with skepticism. It also points out that, however, that businesses able to leverage consumer knowledge (about sustainability issues) have a significant competitive advantage.
Part of our approach is to see corporate sustainability as a journey (see table below, for a fuller version see our brochure here) where being reactive and responsive to issues thrown up by the sustainability agenda are steps along the way to integrating and aligning sustainability across all activity streams of the organisation.
4. In your presentation you mentioned "unintended consequences" and the World Health Organization incident. Are there any similar examples from the corporate world that you could share with readers?
One of the things that has helped us as consultants tremendously with understanding sustainability is that we don’t really use any of the many definitions that are out there. Instead, we primarily see sustainability as mindset or paradigm: “Sustainability is about perceiving and understanding the world as a series of interconnected and interdependent systems - which is fundamentally different from seeing and approaching the world in components, sectors or issues”.
We are used to organise our thinking in components and do so intuitively, but the big challenge of the 21st century is to get a much better grip on understanding the interdependency of these components. This paradigm shift to systems thinking provides a valuable vantage point to survey the vast array of unintended consequences that has arisen from the disintegrating of multiple interdependent factors, and they are virtually everywhere!
For example, climate change as it relates to CO2 emissions and deforestation is an unintended consequence of practically every industry, none of which set out to double-glaze the planet! The development of innovative products, as they were then, such as the use of asbestos in the construction industry, lead in petrol and paint, and many other examples which had/have unintended health consequences, or the use of CFCs in refrigerants and aerosols which affected the ozone layer were not anticipated at the time of their deployment.
The use and expansion of hydro-electric power in the energy industry disrupts river systems, affects soil fertility and has unintended consequences for agriculture. The deployment of commodity-backed leveraged assets in the financial industry affects food security in poor nations as speculators attempt to drive asset value up.
The commercial system is one of, if not the, most complex systems we have, and the interconnection within commerce, with society and the ecosystem is just the nature of things. Part of the sustainability agenda is to understand these better, mitigate the negative, in some cases, disastrous unintended consequences to this flurry of activity, and leverage natural interdependence to create strategies that enhance commerce, natural capital and social well being at the same time, much in the way that the ecosystem does so well and so elegantly.
These examples of unintended consequences, incidentally, are different in character to those that come as a result of strategies employed by some corporate entities of neglecting, for example, environmental guidelines or laws because it is more profitable to bribe officials or pay the associated fine or the strategy of relocating operations to countries where there is no or a poor human rights and environmental regulatory framework so as to maximise exploitative opportunities to maximise profitability.
5. Other than time and money, what investments must a company make in corporate social responsibility?
Investments in time and money are certainly good places to start!
As I mentioned earlier though, time frames for sustainability strategies are longer than business-as-usual expectations. The Accenture survey of CEOs, who believe overwhelmingly that sustainability has become critical to their company's success, also said that sustainability could be fully embedded into core business within 10 years. More often than not, the “tyranny” of quarterly financial reporting works against building such a culture of long-termism.
When it comes to financial investments for sustainability, the obvious comment to make would be to make sure that any investment made is able to maximise returns.
For example, if a company invests in sustainability reporting, with say, the Global Reporting Initiative as many do, creatively and actively communicating with stakeholders, rather than mere ‘check-box’ reporting would bring a much higher return to the whole process. Good sustainability reporting is only part of good sustainability communication.
The Cone study reported that 87 percent of consumers said that communication from companies is one-sided with only positive information shared, 67 percent said company messages about their social and environmental initiatives ended up confusing and convoluted, and 75 percent said they want the opportunity to voice their opinion to a company about its social/environmental practices and products.
Advances in communication technologies not only give a company many more options beyond ‘the printed report’ but also have changed how audiences expected to be communicated with. A report by Radley Yeldar on online sustainability reporting noted that when online functionalities are being used, these tend to focus on “design” and looking pretty rather than on coupling design and functionality effectively.
It also noted that while companies were adept at using Web2.0 for generating dialogue in many corporate communication activities, curiously none of the 40 organisations surveyed allowed users to post their own comments or content within the parameters of the primary source of reporting.
In addition to communicating well with external stakeholders, engaging internal stakeholders on a company’s sustainability vision and strategy is just as important for maximising investment value. Both the Deloitte and Brighter Planet reports found that a dedicated staff and access to internal stakeholders were two important success factors, alongside an adequate budget to effect meaningful change and maximise value.
Mindy Lubbers, President of CERES and Director of Investor Network on Climate Risk said, ‘visionary leaders understand that the sustainability of their organizations and of our planet depends on more than just executive-level commitment, as critical as that commitment is. The shift to sustainability is a cultural shift, and it’s one that must happen at all levels within an organization to be truly effective.
Employees represent a critical element in an organization’s efforts to fuse sustainability with profitability’. The Brighter Planet report quotes a Gallup study which indicated that organisations with an engaged workforce have 2.6 times the earnings per share growth rate compared to organisations in the same industry with a less-engaged workforce. Sustainability programs serve as an important part of organisations’ broader strategies for activating and engaging employees.
Several studies, including the one by the Center for Creative Leadership have shown that sustainability and CSR programmes are directly linked to an employees’s commitment to an employer. The McKinsey survey, however, critically points out that, while business leaders and investors believe that sustainability programs can generate substantial shareholder value, they rarely take this into account when making business sustainability investments.
We feel employee engagement is crucial for the success of sustainability initiatives, and our consulting methodology is designed to create an active and empowered workforce, and facilitate work in the upper right quadrant of the graph below.
Our approach is designed to reach the level of engagement needed to drive innovation and creativity, and provide the coherence, language, and management systems across business units and activity streams necessary to foster teamwork and progressively build alignment from boardroom to shop-floor.
We recommend building a sustainability team from different activity streams (we use Governance and Management; Operations and Facilities; Design and Process Innovation; Human resources and Corporate Culture; Marketing and Communications; Partnerships and Affiliations as a guide) through a self-selection process, in addition to the current team (if any) which is often centred in the Corporate Communications department.
We advise using a 10-step non-linear iterative process designed to progressively build capacity within the team on sustainability data capture, indicator development, systems analysis, trend tracking, change management and communication strategies etc.
Data collection alongside indicator development capabilities within a robust framework of sustainability are essential capacities, in our opinion, for corporate sustainability teams. An IBM CSR survey of senior business executives highlighted significant gaps between sustainability or CSR goals and how to attain them, particularly in the area of data collection.
It found that ‘companies are not collecting and analysing all the right information or aggregating it often enough. This means that they can’t implement real changes that would fundamentally increase efficiency, lower costs, reduce environmental impact and improve reputation with key stakeholders.’ Even if a company opts for ‘off-the-shelf indicators’, basic knowledge of how these indicators operate within systems and the feedback loops involved is important for identifying high-impact leverage points for innovation.
And innovation, coupled with a well thought-out strategy and change management processes within an overall sustainability management system (SMS), is really where corporate sustainability comes into its own to provide value for commercial enterprise organisations.
email@example.com For more information on Counterpoint: http://sn.im/wcvll
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September 2, 2010
Why do companies seek your services? Is their action triggered by specific incident(s) or are they addressing long-term issues?
There are many different reasons, but one of the more significant drivers triggering action in Asia are the requirements, guidelines and standards put in place by governments and stock exchanges. More
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