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CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABILITY CHAPTER 8 The New Business Imperatives? An International Comparison * Outline The overwhelming movement presently ... – PowerPoint PPT presentation

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The New Business Imperatives? An International
  • The overwhelming movement presently driving
    towards corporate social responsibility
  • Why bridging the great divide between corporate
    governance and corporate social and environmental
    responsibility (CSR) is the next great challenge
    for business
  • The responsibilities of business corporations to
    shareholders, stakeholders and government
  • The legitimacy of corporate social responsibility
  • The increasing sophistication of corporate
    reporting of social and environmental matters

The Economics of Climate Change
Source Stern Review The Economics of Climate
Change (20068)
Defining Social and Environmental Sustainability
  • Definitions of CSR and sustainability range from
    the basic to the most demanding
  • from a specific reference to a number of
    necessary activities to demonstrate
  • to a general call for a comprehensive, integrated
    and committed pursuit of social and environmental

The Significance and Impact of CSR
  • The narrow focus of corporate governance
    exclusively upon the internal control of the firm
    and simply complying with regulation is no longer
  • Corporate objectives described as wealth
    generating too frequently have resulted in the
    loss of well being to communities and the ecology
  • Trend towards monitoring not just the financial
    health of the company, but the social and
    environmental impact of the company
  • CSR is becoming established in many corporations
    as a critical element of strategic direction, one
    of the main drivers of business development, as
    well as an essential component of risk

CSR Responses Investors
  • Capital Report 2006, a guide to the investment
    community on how to incorporate environmental,
    social and governance issues into their
    investment decision-making and ownership
  • The third Carbon Disclosure Project meeting,
    (investors representing 21 trillion dollars in
    assets) collectively requesting the worlds
    largest corporations to disclose information on
    greenhouse gas emissions and their approach to
    the management of carbon risks (UNEP FI 2005).
  • Banks representing more than 80 of the global
    project finance market, have adopted the Equator
    Principles, a set of voluntary principles
    outlining environmental, social and human rights
    disciplines associated with project finance above
    50 million (Freshfields Bruckhaus Deringer

CSR Responses International Organizations by
encouraging CSR
  • The International Finance Corporation (IFC), the
    private sector investment arm of the World Bank
    originally developed the CSR principles
  • The OECD Guidelines for the operations of
    multinational corporations (OECD 2000)
  • The European Union Guidelines for the business
    contribution to sustainable development (European
    Commission 20032004)
  • Global Reporting Initiative (GRI) 2002
    Sustainability Reporting Guidelines

CSR Responses Corporations by incorporating CSR
in their business
  • The World Business Council for Sustainable
    Development, and the World Economic Forum Global
    Corporate Citizenship Initiative has projected
    corporate responsibility in the minds of the
    international business elite (WBCSD 20022004
    WEF 2005)
  • Leading corporations signed up for the Global
    Reporting Initiative and more than 2,000
    international corporations now publish reports on
    their CSR performance
  • Business Leaders Initiative on Human Rights
  • The Conference Board
  • Business in the Community
  • Business for Social Responsibility
  • The new indices including the Dow Jones
    Sustainability Index and FTSE4Good, are seeking
    to reinforce the commitment to CSR

The Integrity of CSR
  • Questions are often addressed to the sincerity of
    corporate social and environmental initiatives
    the legality of company directors engaging in
    these concerns equally, the legality of the
    trustees of investment institutions attending to
    these interests and the verifiability of CSR
    activities and outcomes
  • There is a place in the market economy for
    responsible firms. But there is also a large
    place for their less responsible competitors.
    ..Precisely because CSR is voluntary and
    market-driven, companies will engage in CSR only
    to the extent that it makes business sense for
    them to do
  • Civil regulation has proven capable of forcing
    some companies to internalize some of the
    negative externalities associated with some of
    their economic activities.

Tomorrows Markets
  • People
  • Innovation
  • Natural Capital
  • Connection
  • Roles and Responsibilities ( Democracy,
    accountability, privatisation)

The Range of Environmental Costs
Tier Description
1 Conventional Costs 1 Conventional Costs
Includes the costs of direct raw materials, utilities, labour, supplies, capital equipment and related depreciation
2 Hidden Costs 2 Hidden Costs
Includes the up front environmental costs, such as search costs relating to environmentally conscious suppliers, initial design costs of environmentally preferable products, regulatory costs which are often obscured in overhead costs, future decommissioning or remediation costs
3 Contingent 3 Contingent
Defined in probabilistic terms and includes fines for breaching environmental requirements, clean up costs, law suits relating to unsound products
4 Relationship and Image Costs 4 Relationship and Image Costs
These costs are difficult to determine and would seldom be separately identified within an accounting system. However they could be expected to have some influence on the value of some intangible assets, such as goodwill, brand-names and so forth. The sum of the costs in Tiers 1 to 4 can be referred to as private costs and they can directly impact on an organizations reported profit
5 Societal Costs 5 Societal Costs
These costs are often referred to as externalities and represent costs that an organization imposes upon others as a result of their operations but which are typically ignored by the organization. They could include environmental damage caused by the organization for which they are not held accountable or adverse health effects caused by organization-generated emissions for which the organization is not held responsible. It is difficult and sometimes controversial to put a cost on these Effects and with the exception of a few organizations worldwide, most entities ignore these costs when calculating profits. However, physical measures can be developed, and related KPIs can be used to assess performance.
Source Van Berkel R. (2003)
KPMG CSR Surveys 1993-2005 (KPMG)
Source KPMG CSR Surveys 1993-2005. KPMG
International Surveys of Corporate Responsibility
Reporting 2005, KPMG International
Drivers for Corporate Social Responsibility (KPMG)
Key Stakeholders According to Corporate
Source Adapted EIU (2001)
CSR Stakeholder Model Driving Enlightened
Shareholder Value
Source Mays S. (2003). Corporate Sustainability
_ An Investor Perspective. The Mays Report.
Department of Environment and Heritage
Commonwealth of Australia. p11-16.
CSR Stakeholder Model Driving Enlightened
Shareholder Value
Source Mays S. (2003). Corporate Sustainability
_ An Investor Perspective. The Mays Report.
Department of Environment and Heritage
Commonwealth of Australia. p 11-16.
Legal and Moral Liability are Converging
The Legitimacy of CSR from a Governance
  • Corporations enlightened shareholder value?
  • The duty to promote success of the company
  • Investment Institutions Effective Portfolio
    management The duty to address ESG issues?

Fund Trustees Fiduciary Duties
Source Freshfields Bruckhaus Deringer (200515)
Duties Diagram 1-Pensions Geneva UNEPFI.
Institutional Investor Voting 2000-2003
Full Source Monks, R. Miller, A. and Cook,
The Impact of Socially Responsible Investment
Upon CSR
  • UK
  • Socially responsible investment (SRI) according
    to the UK Social Investment Forum (2001)
    combines investors financial objectives with
    their commitment to social concerns such as
    social justice, economic development, peace or a
    healthy environment.
  • France
  • AFG-ASFFI the association of professional fund
    managers, requests that corporate boards consider
    the concept of sustainable development, social
    responsibility and the environment. Also, French
    corporate law was amended to require listed
    companies to disclose in their annual reports how
    they take the social and environmental
    consequences of their activities into account in
    May 2001.
  • Australia
  • The Ethical Investment Associations (EIA 2002)
    figures SRI in Australia has grown dramatically
    rising to A13.9 billion in 2002, an increase of
    31 over the previous year while managed funds as
    a whole declined by 0.1

Proportion of UK Funds Taking SRI Concerns Into
Account to Differing Degrees
Source Mathieu, E. (2000),UKSIF .
Growth of SRI Investment Assets in Australia
2000- 2006
Source Ethical Investment Association (EIA) 2006
SRI Benchmarking Survey
The Impact of Socially Responsible Investment
Upon CSR
  • US
  • US Socially Responsible Investing (SRI),
    according to the biennial report of The Social
    Investment Forum, of the overall investment
    through professional managers amounting to
    US19.9 trillion in December 2000, over 11 or
    2.3 trillion dollars is invested in a socially
    responsible manner.
  • The Social Investment Forum (SIF) breaks down
    these figures into 1.4 trillion employing
    screening only on social or environmental
    criteria 601 billion in screening and
    shareholder advocacy funds 305 billion in
    shareholder advocacy only funds and 8 billion
    in community investment funds

Growth of SRI Investments in the United States
Source SIF (2006) 2005 Report on Socially
Responsible Investing Trends in United States,10
year Review. Washington DC Social Investment
Forum. Fig 1.2 p. 2.
Screens most commonly used in Screened Portfolios
in the US (2005)
US Shareholder Actions Planned for 2003-2004
Including Key Resolutions
Proposed Proposed Withdrawn Withdrawn Voted On Voted On Average Vote Average Vote
Type of Proposal 2003 2004 2003 2004 2003 2004 2003 2004
Independent board chair 42 59 9 8 30 36 26.10 28.30
Limit consulting by auditors 29 35 7 16 19 12 16.10 14.20
Increase board independence 8 14 1 0 5 13 27.50 26.10
Majority vote to elect directors - 14 - 2 12 - 11.80
Cumulative voting 21 24 1 1 20 21 34.10 34.90
Restrict executive compensation 64 158 2 28 36 79 15.40 11.50
Expense option value at time of grant 115 50 27 11 69 34 47.40 53.30
Vote on golden parachutes 21 36 2 8 18 26 57.00 51.80
Cap executive pay - 15 - 3 - 7 - 7.70
Award performance-based stock options 92 8 24 1 59 5 16.10 40.20
Poison pill 107 100 1 3 84 51 60.00 61.10
Declassify board 63 59 9 11 48 39 63.40 71.60
Eliminate supermajority vote 10 11 1 1 9 7 60.50 75.80
Sell the company/maximise value 4 13 0 1 2 4 3.20 25.10
Other 215 251 38 84 75 99 - -
TOTAL 791 847 122 178 474 445
Source SIF (2006). 2005 Report on Socially
Responsible Investing Trends in the United
States- 10 Year Review, Washington DC SIF.
Social and Environmental Investment Indices
  • The Calvert Social Index
  • The KLD Broad Market Social Index (BMS Index)
  • The Domino 400 Social Index (DSI)
  • The Nasdaq Social Index
  • The Large Cap Social Index (LCSI)
  • FTSE4Good
  • Dow Jones Sustainability Indexes (DJSI)
  • The Ethibel Sustainability Index (ESI)
  • ECP Ethical Global Return

Corporate Reporting of CSR
  • The Global Reporting Initiative (GRI) Principles
    aim to
  • Provide a balanced and reasonable representation
    of an organization's sustainability performance
  • Facilitate comparability
  • Address issues of concern to stakeholders
  • The GRI reporting principles
  • Transparency
  • Inclusiveness
  • Auditability
  • Completeness
  • Relevance
  • Sustainability Context
  • Accuracy
  • Neutrality
  • Comparability
  • Clarity

Future Developments The Redesign of the
  • The effective integration of corporate social and
    environmental responsibilities could potentially
    release greater value for both shareholders and
    wider stakeholders

Corporate Strategies to Deliver Value to Society
Source Nelson J. (2004).
  • Only a fundamental redesign of corporate forms,
    objectives and value measures can fully meet the
    realities of responsibility.
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