CSR and Sustainability Flashcards
Define CSR and outline some examples of how companies might act in accordance with an awareness of social responsibility.
Business decision-making linked to ethical values, compliance with legal requirements, and respect for people communities and the environment (AKA corporate citizenship).
Treat employees fairly and with respect;
Operate in an ethical way and with integrity;
Respect basic human rights;
Sustain the environment for future generations; and
Be a responsible neighbour in their communities.
What is a corporate citizen?
Companies should see themselves as citizens within society and as such are expected to behave as ‘good citizens’ towards all their neighbours.
Define sustainability
Conducting business operations in a way that can be continued into the foreseeable future, without using natural resources at such a rate or creating such environmental damage that the continuation of the business will eventually become impossible.
What are the six capitals whose value companies should seek to maintain or enhance?
- FINANCIAL CAPITAL - (shares, bonds, cash)
- MANUFACTURED CAPITAL - (physical means of production/infrastructure)
- HUMAN CAPITAL - (people who work for organisation, their skills/experience)
- INTELLECTUAL CAPITAL - (legal rights and protection/brand values/accumulated knowledge)
- NATURAL CAPITAL - (environment - stock of raw materials and energy used to make products/services)
- SOCIAL CAPITAL - (any value added by social relationships and institutions. Human relationships, co-operation, networks, communication channels, families, communities)
What are the general OECD Guidelines for multinational companies, and why were these considered necessary?
Having policies that:
Contribute to economic, social and environmental development;
Respect the human rights of those people affected by their activities;
Encourage development of local business through cooperation with local communities;
Encourage development of human capital in those communities, by creating employment and providing training;
Refrain from seeking or accepting exemptions from local laws on the environment or health;
Support and promote good governance practice; and
Avoid improper involvement in local politics.
Guidelines issued with the aim of encouraging the positive contributions that multinational companies can make to economic, environmental and social progress and to minimise the difficulties to which their various operations may give rise.
What are the OECD Guidelines to multinational companies on employment policies?
Requirements for multinationals to:
Respect the right of employees to be represented by trade unions;
Contribute to the abolition of child labour;
Contribute to the abolition of forces labour;
Avoid discrimination on the grounds of race, gender, religion or political opinion;
Observe standards of employment that are not less favourable than those provided by comparable employers in the host country;
Take adequate steps to ensure occupational health and safety;
As much as possible, use local labour and provide them with skills training; and
In negotiations with trade union representatives, avoid using the threat of moving all or part of the company’s operations to another country or region.
Define SRI and explain three different approaches to implementing an SRI strategy.
Socially responsible investing - an approach to investment management that takes into account a proper analysis of the CSR responsibilities of companies to society as a whole and particular stakeholder groups.
- ENGAGEMENT STRATEGY - institutional investor acquires shares, engages with BOD and tries to persuade them to adopt socially responsible policies.
- INVESTMENT PREFERENCE STRATEGY - investor develops set of guidelines that companies should meet. Only invests in companies that meet the guidelines.
- SCREENING STRATEGY- investments restricted to companies that pass a ‘screen test’ for ethical behaviour.
For what reasons might an institutional investor adopt an SRI strategy?
REPUTATIONAL RISK - Investor may have strong ethical values which forms an integral part of their reputation. If it were found to be investing into unethical companies then its reputation would be at risk. Adopting an SRI strategy would ensure that this does not happen.
PUBLIC RELATIONS AND MARKETING BENEFITS - employee loyalty, consumer acceptance, corporate reputation e.g. Iceland Christmas 2018 advert re palm oil free products.
BUSINESS PROBITY RISK - failure to act in an honest/ethical way can lead to reputational risk but also regulatory or legal action for breaching rules and laws.
CASE STUDY: British Jewellers’ Association
2006 BJA took an ethical stance against the sourcing of diamonds from countries such as the Congo or Sierra Leone, where fighting over diamonds had led to civil war and widespread slaughter.
It called these diamonds ‘blood diamonds’ in an attempt to eliminate the trade in the UK.
CASE STUDY: M+S - Ethical and environmental commitments to 2020
2010 M+S set ethical and environmental commitments to 2020 and announced its intention to become one of the world’s most environmentally friendly retailers by 2015.
The company initially set a list of 100 five-year ethical and environmental targets in 2007 and expected to commit £40M in expenditure each year to this initiative. In 2009 it had saved over £50M.
Savings came from various areas such as a 20% saving in fuel costs by using aerodynamic lorries for deliveries.
Its new targets for 2020 included sourcing all food, clothing and home items from sustainable or ethical sources such as the Fairtrade scheme and trying to persuade its clothing suppliers to pay a living wage to its employees but without adding costs to its customers.
Give 3 examples of companies that have reduced costs by implementing environmentally friendly business initiatives.
- M+S initially set a list of 100 five-year ethical and environmental targets in 2007 and expected to commit £40M in expenditure each year to this initiative. In 2009 it had saved over £50M. Savings came from various areas such as a 20% saving in fuel costs by using aerodynamic lorries for deliveries.
- 2008 Walmart told Chinese suppliers it would hold them to strict environmental and social standards. Encouraged them to cut down on packaging, therefore more could be fitted into trucks, reducing carbon emissions and fuel costs.
- Wilh. Wilhelmsen (Norwegian Shipping Co.) - in developing a fuel efficient propulsion system, found opportunities for using a catalytic converter to neautralise nitrogen dioxide and reduced emissions, switch to water-based cleaning products instead of chemical based, better air-con system and a cleaning system for ballast water on its ships that reduced the spread of bacteria around the world.
The savings in energy costs and the reduced risks of penalties for pollution that the company achieved from these changes justified the new propulsion system financially.
How might companies be affected by a bad reputation for concerns about social and environmental issues?
Loss of business to the point of collapse (i.e. Railtrack collapse 1 year after the Hatfield rail crash in 2001 due to public safety concerns).
Drop in share price (e.g. news of the use of child or slave labour).
Loss of consumer sales.
Loss of future contracts.
Cost of rectifying damage, improving environmental/safety features.
What are the UK statutory requirements for companies to report on social and environmental issues in their annual report and accounts?
CA2006 requires quoted companies to report on social and environmental issues in their strategy report.
The business review should include info about:
- environmental matters;
- company’s employees; and
- social, community and human rights issues.
Strategy report should include non-financial KPIs including info relating to environmental matters and employee matters.
What are the main ABI guidelines to companies about ESG reporting?
Consistent with CA2006 requirements of disclosures on ESG issues to be included in the annual strategy report and states that shareholders place great value on narrative reporting which:
(1) sets ESG risks in the context of the whole range of risks and opportunities facing the company; (2) contains a forward-looking perspective; and (3) describes the actions of boards in mitigating these risks.
3 areas of ESG reporting for disclosures are:
- ESG RISK ASSESSMENT BY THE BOARD - significance of ESG risks, ID’d and addressed the significant ESG risks, effective systems in place to manage/mitigate significant risks.
- ESG RISK (policies + procedures) - P+P in place to mitigate significant ESG risks? If so, info on whether the company has complied with them for material risks, KPIs and the role of the board in providing oversight.
- REMUNERATION AND ESG ISSUES - in remuneration report, company should state whether the RC is able to consider ESG issues when setting the remuneration of exec directors and whether it has ensured that the incentive structure for senior management does not raise ESG risks.
Why might companies decide to produce voluntary SE reports?
May have a genuine concern for SE issues and consider that they are fulfilling their responsibilities to stakeholders by reporting on these matters.
Might recognise that its reputation with the public may be at risk because of the nature of their business activities (i.e. mining, oil/gas extraction).
Competitive advantage over rival companies by reporting on its SE policies.
Pressure to report more extensively on ESG issues from major shareholders or bodies representing investment institutions.
Rebuilding trust of general public in the ethical behaviour of companies if they feel this has been lost.
