KCB revision - SLIDE DECK 9 - CSR

Question 1

Various terms are used to describe CSR. list some of the terms and summarise their meanings.

Answer 1

CSR - ‘The commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large’.

CORPORATE CITIZENSHIP - How companies should act in the same way as the citizens of the countries in which they operate; that is, to meet the countries’ legal, social ethical and economic responsibilities expected of its citizens.

SUSTAINABILITY - How a company carries out its operations, develops its strategy and manages risk to have a positive impact, or lessen a negative impact, on the environment.

ESG - Identifying ways of integrating environmental, social and governance concerns into capital markets.

Question 2

Certain aspects of CSR are required by law and regulations, such as those that provide for health and safety at work, employee protection and environmental laws. However, many CSR activities carried out by organisations are voluntary. This has been driven from four different sources.

What are the 4 sources?

Answer 2

1. The Company
2. Governments and bilateral organisations
3. Investors
4. Customer demand

Question 3

What are the drivers for the company to adopt CSR activities?

Answer 3

1. For sustainability (long term sustainability of the company)
2. To reduce risk (reputational risk)
3. To attract capital (Financial and Human)
4. For innovation
5. To obtain competitive advantage (think Cadbury Fairtrade)

Question 4

How do Governments and Bilateral organisations adopt CSR activities?

Answer 4

Regulations and guidance.

Government – through laws and regulations
OECD - Guidelines for multinationals
The World Bank Group - Guidance in areas such as human rights and good corporate governance practices

Question 5

What are the drivers for investors in CSR activiities?

Answer 5

Investors may not invest in companies whose practices are considered to go against the values espoused by the investors or to be violating laws, regulations and the principles of human rights.

Factors include:
company’s record on human rights & child labour
Impact of the company’s activities on the environment
Nature of business are taken into account
This type of investment is referred to as socially responsible investment (SRI)

Question 6

What is does the term GREENWASHING means in connection to CSR activities?

Answer 6

‘Greenwashing’ is the practice of making an unsubstantiated or misleading claim about the environmental benefits of a product, service, technology or company practice.

An example of greenwashing is an organisation committing to reduce the environmental impact of its product line before the products are even ready.

Question 7

A McKinsey article written by Keys et al. (2009) described 4 different types of categories in relation to CSR activities. What are these?

Answer 7

Pet projects
These are the projects most closely associated worldwide with CSR. They frequently reflect the personal interests of board members or senior executives within the organisation. These activities often get a lot of press coverage for the organisation, but usually offer minimal benefits to society or the organisation. Examples of such projects are sponsoring an art exhibition, a local theatre production, a local sports club event, and so on.

Philanthropy
Philanthropy usually takes the form of large charitable donations to groups of people, institutions or individuals. These donations can be in the form of money, equipment and other materials, or even staff time where the company has the expertise to assist others who need their input. Examples of these activities include large donations to charitable organisations, educational projects, healthcare projects, scholarships for students who cannot afford to pay their fees and sponsorships for needy people to receive medical attention.

Propaganda
Activities in this category are focused primarily on building the organisation’s reputation. They have little real benefit to society. They include sponsoring large sporting events, renovating and covering properties in advertising, sponsoring an international event, and so on.
Organisations need to be careful when pursuing this category of CSR activity as if it is perceived that there is a gap between the organisation’s words and actions, this may be dangerous to the reputation of the organisation.

Partnerships
CSR activities that create significant shared value creation for both the organisation and society fall within the category of partnerships. Such activities usually create value for the organisation by addressing major strategic issues or challenges faced by the organisation. This in turn leads to a long-term sustainable benefit for society, as it is in the best interests of the organisation to continue the activity. It makes business sense.

Question 8

In 2004, Marco Albani and Kimberly Henderson published finding of their research around what makes CSR Partnership work long term. They identified 7 principles. List the,

Answer 8

Identify clear reasons to collaborate
Find a ‘fairy godmother’
Set simple, credible goals
Get professional help
Dedicate good people to the cause
Be flexible in defining success
Prepare to let go

Question 9

Various CSR frameworks and principles exist. List some of these.

Answer 9

UN Global Compact
Aim of encouraging companies to align their strategies and operations with the 10 principles covering human rights, labour, the environment and anti-corruption.

The SIGMA Project
The SIGMA Guidelines link into existing management systems and frameworks such as ISO 14001, Investors in People and provides a sustainability reporting framework using the five capitals natural; human; social, manufactured and financial.

Equator Principles
A risk management framework, adopted by financial institutions, for determining, assessing and managing environmental and social risk in projects and is primarily intended to provide a minimum standard for due diligence and monitoring to support responsible risk decision making.

OECD Guidelines for Multinational Enterprises
Aims to encourage ‘the positive contributions that multinational enterprises can make to economic, environmental and social progress and to minimise the difficulties to which their various operations may give rise’.

UN Sustainable Development Goals
The sustainable development goals (SDGs) are a collection of 17 global goals set by the United Nations General
Assembly in 2015 as ‘a universal call to action to end poverty, protect the planet and ensure that all people enjoy peace and prosperity’. All 193 countries of the UN have accepted them and the aim to achieve them by 2030.
The private sector is critical in achieving the SDGs and have been tasked to ensure that their businesses contribute to achieving SDG targets as well as raising awareness about them. Several organisations, Coca Cola and Unilever among them, are measuring their CSR performance against the SDGs.

Question 10

An organisation, when deciding what CSR targets and measurement to use, should consider what?

Answer 10

Focus on outcomes - how the initiative changed the lives of the beneficiaries of the initiatives and/or helped create a better planet

Measuring the outcome using both quantitative and qualitative measurements

Listen to stakeholders

Do not undervalue stories. Stories can be incredibly powerful, for instance how an individual’s life has been changed by the organisation’s initiative

Learn from others

Identify and measure the risks

Measure, refine, modify, measure again

Question 11

Is it appropriate for organisations to link CSR initiatives to senior exec. remuneration?

Answer 11

Boards should consider whether it is appropriate for their company to set CSR targets for their senior executives.

Targets should only be set where organisations have developed clearly articulated business cases for CSR initiatives outlining how the initiative helps secure the overall sustainability of the organisation.

In the absence of CSR metrics, boards should retain the right to reduce incentive awards in cases of substantial damage to the company’s business or reputation resulting from an event that has had a negative effect on the environment, society or the organisation’s long-term sustainability.

Question 12

Where can stakeholder groups go to to benchmark and compare CSR performances?

Answer 12

Dow Jones Sustainability Indexes (DJSI)

FTSE4Good Indexes

Business in the Community (BITC) Responsible Business Tracker

Question 13

There is a greater focus in recent years for companies to engage with a wider stakeholder group than just their
shareholders and potential investors.

What does the UK CG Code say in respect of this?

Answer 13

Engagement with Stakeholders….

‘The board should understand the views of the company’s other key stakeholders and describe in the annual report how their interests and the matters set out in section 172 of the CA2006 have been considered in board discussions and decision-making. The board should keep engagement mechanisms under review so that they remain effective.’
Provision 5, UKCG Code

Question 14

What 3 ways can board engage with stakeholders?

Answer 14

Reactively - Engages defensively, when forced to in response to a crisis

Proactively – Tries to understand its stakeholders’ concerns and issues and engages with them

Interactively - Has ongoing relationships of mutual respect, openness, and trust

Question 15

What other resources can be used to assist with boards engagement with stakeholders?

Answer 15

ICSA / CGI & IMA “The stakeholder voice in board decision making” (2017)

Question 16

What guidance do companies have available when engaging with the workforce?

Answer 16

UKCG Code
‘The board should ensure that workforce policies and practices are consistent with the company’s values and support its long-term sustainable success. The workforce should be able to raise any matters of concern.’
Principle E, UKCG Code

The board should understand the views of the company’s other key stakeholders and describe in the annual report how their interests and the matters set out in section 172 of the Companies Act 2006 have been considered in board discussions and decision-making. The board should keep engagement mechanisms under review so that they remain effective. For engagement with the workforce, one or a combination of the following methods should be used:
* a director appointed from the workforce;
* a formal workforce advisory panel;* a designated non-executive director.
If the board has not chosen one or more of these methods, it should explain what alternative arrangements are in place and why it considers that they are effective.
Provision 5, UKCG Code

There should be a means for the workforce to raise concerns in confidence and – if they wish – anonymously. The board should routinely review this and the reports arising from its operation. It should ensure that arrangements are in place for the proportionate and independent investigation of such matters and for follow-up action.
Provision 6, UKCG code

Wates
Directors should foster effective stakeholder relationships aligned to the company’s purpose. The board is responsible for overseeing meaningful engagement with stakeholders, including the workforce, and having regard to their views when taking decisions’.
Principle 6, Wates Principles

Question 17

How should the board report on stakeholder engagement?

Answer 17

The Companies (Miscellaneous Reporting) Regulations 2018, which amended the Companies Act 2006, requires large companies to include a statement within their Strategic Report describing how the directors have had regard to the matters set out in section 172 in the performance of their duties.

The details should also be included on the companies website

To promote the success of the company

Factors to be considered:

The likely consequences of any decision in the long term
The interests of the company’s employees
The need to foster the company’s business relationships with suppliers, customers and others
The impact of the company’s operations on the community and the environment
The desirability of the company maintaining a reputation for high standards of business conduct
The need to act fairly as between members of the company

s172, CA2006

Question 18

What is a co sec role in assisting the board with stakeholder engagement?

Answer 18

4 areas - developing, advising, monitoring and communicating.

Examples of each below.

DEVELOPING
Identifying stakeholders, their expectations and interests.
Mapping the power and interest of stakeholders or stakeholder groups, so that they can develop a strategy for engaging with them.
Determining the board’s financial and nonfinancial needs for decision making, management oversight, and monitoring with regard to key stakeholder relationships associated with creating value and long-term sustainability.
Discussing and approving key performance indicators for social, environmental and financial performance.
Approving a policy for external, financial, nonfinancial (sustainability) or integrated reporting.
Looking to integrate stakeholder issues into annual shareholder meetings. This can be done through resolutions, presentations at meetings, and/or displays at the entrance or in the meeting room.
Discussing the risks and impacts (positive and negative) of projects and operations and providing transparent disclosure information to stakeholders (including shareholders).
Convening stakeholder forums and inviting key stakeholder representatives to address board meetings, so members of boards hear from stakeholders directly about their concerns and issues.
Documenting the concerns and issues of stakeholders and lessons learned and feeding this into the risk management, strategic planning and business continuity processes

ADVISING
Advising the board on reporting – and ensuring that management make recommendations for reporting – to specific stakeholder groups, and where appropriate, develops reports to specific stakeholder groups..
Alerting the board and/or management to opportunities and risks associated with stakeholder engagements
Advising the board on the setting up of a committee responsible for stakeholder
Advising the remuneration committee regarding linking management’s rewards, remuneration and other benefits, to the achievement of CSR targets

MONITORING
Carry out an analysis as to where there are gaps between the organisation’s current position and its strategic plan.
Receiving regular reports back to the board which should be included on agendas so that progress against targets can be monitored.

COMMUNICATING
Informing key stakeholders about the CSR initiatives and targets and keeping them up to date on progress.