Corporate conscience

At a time when many of us are trying to be responsible citizens — recycling, conserving, avoiding sweat-shop brands etc — there’s an untold story: many corporations are doing it, too. Baby boomers who were out to save the world in the 60s and 70s, and then became part of the problem in the greed-is-good 80s, are now in key positions in those same corporations they once saw as the bad guys. And some are being born again. These days, companies of all kinds see corporate social responsibility (CSR) as an important plank in their mission statements: perhaps the most important in their interface with consumers. But do their consumers even know about it?

In December 2005, for example, Westpac topped the RepuTex corporate social responsibility (CSR) ratings for the third consecutive year, the only Australian company awarded an AAA rating. Three days later, Westpac also took the top honours in the Ethical Investor Australian Sustainability Awards as Sustainable Company of the Year. Yes, a bank — one of the Big Four, too.

Except for a few mentions buried in the finance news, it barely raised a ripple. Such awards address the major issues confronting the future of our planet, yet most of us aren’t aware they exist. As news, it’s just not sexy enough. Or could it be because the major media groups themselves rate so poorly — below what’s considered acceptable (A) and way below companies we think of as the bad guys?

So what does it mean for the rest of us if banking, mining, energy and even pharmaceutical companies are being acknowledged for cleaning up their act? In fact, there is a sea change happening under our noses, one that offers us as consumers power we’re barely aware of — with the potential for much more if only we would use it.

In good company

The ideas behind corporate social responsibility (CSR) are nothing new, even if the jargon is. In an article for the Brisbane Institute, Dilhan Fernando of Dilmah — winner of Swedish thinktank the Medinge Group’s 2005 Top Brands With a Conscience award — cites the phrase coined by Milton Hershey in the 19th century: “business as a matter of human service”. Hershey believed we are morally obliged to share the fruits of success. Today, his chocolate company, with 13,700 employees and revenue of over US$4 billion, continues his legacy of community involvement and philanthropy as well as having a policy of responsible cocoa growing.

Fernando recalls how his father Merrill J’s struggle to bring fairness and equity into the Sri Lankan tea industry took 30 years: “Eventually, it was Australia that gave him a go in 1988 by bringing a producer-owned brand, packed at origin — with no middlemen involved — direct to consumers.” Dilmah moulds its corporate philosophy around its Five Pillars: quality, tradition, ethics, customer and integrity. The company prides itself on its more-expensive-to-produce single-origin tea made the traditional way so profits remain in Sri Lanka and the local tea workers get a fair deal. In addition, the company has its Merrill J Fernando Charitable Foundation through which it spends large amounts of its profits on medical care, education, childcare and nutrition.

Of course, one could name any number of businesses, large and small, that have long operated responsibly and many whose very raison d’etre is based on social or green principles — or both. Until relatively recently, though, big business was pretty much a conscience-free zone. No wonder, with little pressure from investors, consumers and employees to change its wicked ways. As for governments, globalisation has meant they’re losing power over corporations rather than exerting it.

Finding more principles

Corporate conscience took shape with the idea of the triple bottom line (3BL, TBL). This principle is based on the belief that companies should have more than just one bottom line — financial. They should also be accountable in two other key areas: environmental, including the impact of processes, products and services on air, water, land, natural resources, flora and fauna, and human health; and social, which addresses the concerns of employees and the wider community as well as involvement in shaping local, national and international public policy on issues like human rights.

The term Triple Bottom Line was coined in the mid-90s by management thinktank AccountAbility and gained wider currency after the publication of AccountAbility founder John Elkington’s 1998 book, Cannibals With Forks: The Triple Bottom Line of 21st Century Business. The corporate world has been quick to embrace the concept for various reasons, not least among them what Interface Inc CEO Ray Anderson (see sidebar p50) calls “enlightened self-interest”. Social activists have also been enthusiastic about it.

The concept has its critics, though. There is the (often justified) accusation of “greenwashing”, meaning more rhetoric than action. Some argue that 3BL diverts the attention of a business away from its core competency. But perhaps the biggest stumbling block is the problem of measurement: critics say it’s impossible to measure in the same terms as financial reporting. “This piece of jargon is, in short, inherently misleading: the very term itself promises or implies something it cannot deliver,” wrote Wayne Norman and Chris MacDonald in their article “Getting to the Bottom of ‘Triple Bottom Line’” (Business Ethics Quarterly, March 2003).

Doing well by doing good

The recent trend has been towards using the terminology of CSR and, more widely, sustainability, which assess the performance and risk of companies in the same three areas — financial, social and environmental — as well as governance and transparency. To be sustainable a company needs to perform in all these areas and make a profit, which Anderson describes as “doing well by doing good”.

But “doing good” entails a lot more than stand-alone philanthropy. As Anderson says, corporations have to “bake principle into the very DNA of the firm and how they operate — their core business competencies”. An article in Accounting Today quotes Mary Tribble, co-founder of the Forum on Corporate Conscience: “In many cases, a company’s giving program isn’t really integrated into the way they do business and the way that their employees interact with the community. It all needs to connect. If these issues remain in the corporate communications department, they will die.”

Anderson says it’s a positive feedback loop built on trust, whereby customers embrace the product because they see the company doing the right thing and the company does well because the customer honours it with their trust, and around it goes — better than all the advertising in the world, he says. Others might call it the carrot-and-stick approach.

Report card

As with the financial bottom line, reporting is at the heart of the matter. It provides not only the means by which all stakeholders can assess the company’s practices but also helps the company to clearly set out its policies and review its success in implementing them. Among the plethora of guidelines for voluntary CSR reporting, those of the Global Reporting Initiative (GRI) are the most widely used.

GRI is an independent institution working with the private sector, non-profits, universities and other stakeholders to formulate the guidelines, with representatives from business, investment, environmental, human rights, research and labour organisations from around the world. It’s an official collaborating centre of the United Nations Environment Programme (UNEP) working in cooperation with UN Secretary-General Kofi Annan’s Global Compact.

The guidelines can be viewed online. According to GRI, currently about 600 organisations are using them, though there are indications there would be more participation if they were less complex. GRI will be releasing the new and improved third-generation guidelines, G3, and has set up the www.grig3.org to invite public comment on the draft. You can search the GRI database to find out whether an organisation uses the guidelines and download its sustainability report for any year of participation.

Capital punishment — no money

Business needs money to make money, as we all know. Financial institutions and both individual and institutional investors are therefore well placed to promote sustainable development.

Ethical investment

Sustainable responsible investment (SRI) analyses the environmental, social and ethical issues material to a company’s profitability and sustainability. In its 2005 benchmarking survey, the Ethical Investment Association (EIA) reported that, since the year 2000, SRI managed portfolios have grown from $325m to $7.67 billion, an increase of 2360 per cent (almost 24 times). The report also noted that even mainstream fund managers are beginning to recognise that envirosocial factors affect share prices. As for performance, the report shows that the average SRI fund has outperformed the average mainstream fund over three, five and seven years, though they didn’t fare quite as well in the past year. Overseas ethical funds, however, were strong compared with the average mainstream fund and sharemarket benchmarks. Tracking the financial performance of sustainability-driven companies is now easier with sustainability indexes. FTSE4Good was launched in 2001 by FTSE, an organisation that originated as a joint venture between The Financial Times and the London Stock Exchange and now serves thousands of clients in 77 countries worldwide, calculating over 60,000 indices daily, including the FTSE 100. The FTSE4Good Index Series measures the performance of companies that meet globally recognised corporate responsibility standards. The criteria originate from common themes of 10 sets of declared principles, including GRI guidelines.

Another is the Dow Jones Sustainability Indexes (DJSI). Publisher of The Wall Street Journal, Dow Jones is also a provider of a range of indexes, including the Dow Jones Industrial Average. In 1999, it launched the Dow Jones Sustainability Indexes to track the performance of the leading sustainability-driven companies worldwide in terms of economic, social and environmental criteria. The Sustainability Indexes are a cooperation of Dow Jones Indexes, STOXX Limited and SAM Group.

If sustainability is set to become “the product differentiator of the near future” — in the words of Canadian ad man Marc Stoiber, founder of Change Advertising whose mission it is to make sustainability sexy in marketing and advertising — and companies move to protect their market competitiveness in this area, it’s inevitable that ethical investment will be an important driver of CSR.

Responsible financing

In 2003, a group of major financial institutions adopted a set of voluntary guidelines known as the Equator Principles, based on the policies and guidelines of the International Finance Corporation (IFC), the private-sector development arm of the World Bank. Institutions that adopt the Equator Principles undertake to not provide finance to any project with a capital cost of US $50 million or more unless it complies with the standards and guidelines.

The Equator Principles have become the global industry standard for addressing environmental and social issues in project financing. The website details the principles and lists signatories. At time of writing, of the 36 financial institutions operating in over 100 countries to have adopted them, Westpac is the lone Australian signatory.

Corporate punishment — no buyers, no workers

As consumers, investors and employees we’re all in this up to our necks. If we are saying companies need to become good citizens, equally we have an obligation to exercise good citizenship in how and where we spend our money and, as employees, what we’re prepared to do to earn the money. Ira Jackson, Harvard business academic and author of Profits With Principles, calls it “the principle of a more principled consumer and a more principled employee”.

How can we point the finger at unrepentant companies if we buy their products because they’re cheaper, or we think there’s no alternative, or they’re the brands our teenager must have? We have the opportunity to be reactive and proactive because it’s our money and our labour that keep business in business. There’s no better punishment than to not buy a company’s product.

Where once it would have been difficult to find our way through the corporate maze and the webs of subsidiaries and holdings, let alone their environmental and social policies (if any), thanks to the internet we can follow the trail with our mouse. Most companies have a website with a lot of the information we need to make more principled choices on what we’re happy to spend our money on. The internet is creating a more informed marketplace.

It goes without saying that sustainability reporting and policy articulated by companies themselves, and even the independent ratings and awards, should be approached with caution. But rather than focus only on the harmful things done by business it may be time to start acknowledging and rewarding the good. That’s market forces doing good and weeding out the bad guys. Continuing to demonise companies that have embraced reform and CSR — for whatever reason — is a bit like saying “we fought the Japanese in WWII”.

The future

Just as environmentalism on the domestic front has become a mainstream concern rather than the radical issue it was in the 70s and 80s, CSR is about to go mainstream. Many, like Duncan Peterson of the Centre for Australian Ethical Research, say 2005 was the watershed year. “It (CSR) is absolutely poised to go mainstream,” he says.

The program of the Mainstreaming Corporate Social Responsibility Forum 2006, held in London in February, is about meeting the challenge for organisations to embed CSR into the business rather than seeing it as an add-on. Many groups such as the Corporate Responsibility Coalition (CORE) argue for mandatory sustainability reporting and the governments of some countries, such as the Netherlands and France, have already moved in that direction.

In a perfect world, any proposed business or project that could not prove its social and environmental responsibility would not get finance from a lending institution; would not attract investment from investor organisations or individuals; would not find employees willing to do the work; and would not have any customers.

While that may be a long way off, and there is too often a disconnect between stated policies and actual practice — an area where the work of activist groups is important — there is some hope for us and our fragile planet if business does indeed have the sustainability tiger by the tail. Perhaps we can hope “restorative” will be the next buzzword.

It would be a sweet irony indeed if the very foundation of capitalism — market forces — and its tower of strength — globalism — become tools for its reform. It’s in all our hands.

Corporate redemption

Back in the 18th century the first Baron Thurlow famously asked: “Did you ever expect a corporation to have a conscience, when it has no soul to be damned, and no body to be kicked?” But corporations are made up of people who clearly do have souls and bodies. And epiphanies. Ray Anderson, Chairman and CEO of one of the world’s largest multinational carpet companies, Interface Inc, had his in 1994 and has been a charismatic evangelist for sustainability ever since. He described it as “a spear in the chest”, brought on by reading Paul Hawken’s The Ecology of Commerce, and like any good evangelist he confessed his sins: “Before that moment I had never given a thought to what we were taking from the earth or doing to the earth in the making of our products.”

Post-epiphany, Anderson has described himself as a “recovering plunderer” and his long-term corporate goal “to climb Mount Sustainability”. The climb was mapped and progress is measured and regularly reported. It involves “eliminating waste and harmful emissions; maximising our use of renewable energy; recycling waste materials and reusing our products; developing resource-efficient transportation methods; creating a culture that integrates the principles of sustainability into our working lives; creating new models for business by pioneering innovative sustainable commercial opportunities through service offerings such as product leasing”.

The goal is to be 100 per cent sustainable by the year 2020. “The vision is not just to change our company and eliminate our environmental footprint, but through the power of our influence on others to become restorative,” says Anderson.

In 2004 Interface reported carbon intensity was down one-third, greenhouse gases down 46 per cent, smokestacks reduced by 33 per cent, effluent pipes reduced by 47 per cent, and water usage down 78 per cent per yard of carpet tile and 40 per cent per yard of broadloom. Interface makes 40 per cent of the carpet tiles sold globally, with 33 manufacturing locations on four continents and offices in more than 100 countries, including Australia.