strategic approach to corporate responsibility. michal dzoga sofia, 30th october 2008
TRANSCRIPT
Strategic Approach to Corporate Responsibility.
Michal Dzoga
Sofia, 30th October 2008
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Agenda
Global trends in Corporate Responsibility 2
CR development evaluation 8
Deloitte’s approach to CR strategy building process 14
Benefits for a company 19
Global trends in Corporate Responsibility
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Triple Bottom Line
Environmental Obligations
– Develop processes and technologies to protect natural resources
– Develop innovations to reduce environmental harm
– Develop, improve, or sustain infrastructures in local communities
– Engage in waste management/ recycling
Social & Ethical Obligations
– Serve the best interests of the human assets
– Develop innovations to improve standards of living
– Provide resources and support to local communities
– Engage in global events
– Provide resources and support to global stakeholders
Regulatory Obligations
– Abide by the law and industry regulations
– Provide full disclosure of financial information
– Comply with stock exchange regulations
Financial Obligations
– Maximize shareholder wealth
– Ensure long-term profitability
– Communicate strategy, vision, and financial performance to shareholders
– Provide tax revenue for state and federal government
– Support the economies of local communities
Basic reporting extended with CR issues
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Business approach to Social Responsibility
Stronger influence of intellectual capital on company’s real value
Increasing requirements of financial markets, stakeholder groups and global trends
Increasing number and international reporting standardization of extra financial business performance
Integration of Social Responsibility with business strategy
Evolution of Social Responsibility in the direction of Corporate Responsibility and Sustainability
Number of sustainability reports
Number of reports by type
Source: www.corporateregister.com
Source: www.corporateregister.com
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Corporate Responsibility standards
International standards and guidelines Global Reporting Initiative
– Rules for determining report content
Materiality
Shareholders interest
Sustainability
Completeness
– Rules for ensuring high report quality
Balance
Comparability
Accuracy
Timeliness
Transparency
Reliability
Standards used in CR audits
– ISO 14064
– AA 1000
– ISO 14001
– OHSAS 18001
– ISO 9001
– ISO 26000 (in preparation)
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Global trends concerning stock exchange investments
More and more companies are being measured by more than just financial performance – leading to the creation of a number of indices focused on environmental, social and economical performance.
Dow Jones Sustainability Index (DJSI, Nowy York – World index)
FTSE4Good (Londyn – World index)
Johannesburg Stock Exchange Socially Responsible Investment Index
Sao Paulo Stock Exchange Corporate Responsibility Index
Ethibel Sustainability Index (ESI – European index)
Business in the Community (Great Britain)
2005 Environmental Sustainability Index (Yale Univeristy and Columbia University)
Jantzi Social Index (JSI - Canada)
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Investments in environment friendly companies International organization Carbon Disclosure Project (CDP)
In 2003, Institutional investors issued GHG emissions disclosure requests to FT500 largest companies
CDP provides a coordinating secretariat for institutional investors with a combined $57 trillion of assets under management. On their behalf it seeks information on the business risks and opportunities presented by climate change and greenhouse gas emissions data from the world's largest companies: 3,000 in 2008.
35
95
155
284
315
385
0 50 100 150 200 250 300 350 400
2003
2004
2005
2006
2007
2008
Number of institutional investors
47%
60%
71%
72%
77%
82%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
2003
2004
2005
2006
2007
2008
Percentage of responces
Estimation
CR development evaluation
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The trust building Framework
Trust is achieved through behavior and transparency and is a key success factor for the business to operate, innovate and grow.
Stakeholders needs and
expectations
Stakeholders needs and
expectations
StandardsAnd
Guidelines
StandardsAnd
GuidelinesBenchmark
to othersBenchmark
to others
Own needs – what’s good for Business
Own needs – what’s good for Business
Clear value & principles,objectives, governance
structure and “walk the talk”
Transparent reportingon values,
management practices and performance
Get Independent Assurancethrough a phased approach
with external reporting and assurance
Licence to operate, innovate and grow
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General companies’ approach to CR – level of engagement
Non-engagement
Companies at this stage view corporate responsibility at a
distraction or impediment to their primary goals value creation. Beyond legal
requirements they do not engage in environmental,
health, safety, community or governance issues.
Philanthropic approach
Companies approach corporate responsibility as an
exercise in establishing goodwill by making charitable
contributions. The underlying assumption is that
goodwill or reputational enhancement is the only return in investment to be
derived from such actions.
Responsive approach
Businesses act as corporate citizens and
work to actively mitigate risks and reduce
negative impacts arising from their activities. The
goal for these companies is value protection.
Strategic approach
Organizations at this level focus not only on value protection, but also on
innovation that will benefit both society and the
company’s own competitiveness. At this
level of engagement, corporate responsibility is a
business imperative that informs the overall corporate
strategy and is seen as a value creation
mechanism.
Company’s CR partners - stakeholders grouping
Company
Business Strategy
Risk Management
Brand & Reputation
Corporate culture
Customers
Employees
Build reputation and brand of the organization. If loyal to the company, create stable grounds for increasing income.
Their engagement, satisfaction and loyalty impacts company’s perception and determines its economic success.
Social groups e.g. disabled people, local communities, institutions like schools and hospitals influence public opinion and media approach.
Investors
Suppliers
Environment
others:Government / Regulator
Customer organizations
Competitors
The group most interested in sustainable development and dynamic growth. It includes Corporate Governance issues.
The quality, reliability and solidity of their products and services influence credibility and high standards of the company
Ignorance of natural environment protection issues may result in serious threat for the business from public opinion and legal regulations
Stakeholders engagement is becoming crucial in:
-defining and developing sustainability reporting system
-aligning the performance reports with new business strategy
Communities
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Organizational culture
– Mission, Vision, Key Values,
– Code of Conduct,
– Ethical program
Shareholders
– Corporate Governance
– Improve communication with financial market participants
– Internet transmission from stockholders meeting (ASM)
Employees
– Recruitment and development
– Employee voluntary service
– Social actions
– Restructuring
– Trade Unions
Preliminary recognition of CR activities – issues to be dealt with
Reporting
– Environmental report
– Environmental protect report
– Usage of international standards
Local communities
– Relations with organizations
– Charity cooperation (Ngo)
– Social programs
– National culture patronage
Customers
– Quality management systems
– Health & Safety
Suppliers
– On term delivery
– To keep official secret
Environment
– Environment investments
– Green supply chain
– Green footprint
– Energy consumption
– GHG emissions
Corporate Responsibility fields
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Most important challenges in strategic approach to Corporate Responsibility
Source: a. Michael E. Porter and Mark Kramer, “Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility”, ( Harvard Business Review 2006); b. David J. Vidal, “Reward Trumps Risk: How Business Perspectives on Corporate Citizenship and Sustainability Are Changing Corporate Board Survey” (Corporate Board Action Series 2006); c. Leslie Stones, “Forget the Bottom Line, Watch the Managers” (Business Day 2006); d. Robert Eccles and Scptt C. Newquist “Reputation and its Risks” (Harvard Business Review 2007).
Decentralized Strategy Generally, corporations do not have well defined strategies to holistically address CSR as a strategic objective. Many responses have been limited to cosmetic solutions
such as PR and media campaigns
Disconnected Efforts Some corporations perform a number of unrelated CSR activities that address the needs of disparate stakeholder groups and do not focus on a corporate wide
approach to strategic stakeholder groupsa
Resource Constraints: Many organizations have identified financial and staff resource constraints as a major obstacle to the strategic planning and development of CSR activitiesb
Consistent Deployment of CSR Strategy
Balance Corporations have difficulty balancing the primary interests of shareholders and remaining stakeholders to relieve the tension between achieving financial goals versus
social and environmental goals
Short-term focus The primary focus of corporations has been to maximize shareholder profit by addressing easily measurable short-term financial performance goals
Shareholder Interests In the UK, 57% of financial analysts and 41% of investors claim that they do not pay attention to social, ethical and environmental issues when making investment
decisionsc
Stakeholder Interests Communities, employees, and customers express more interest in the long-term strategies such as corporate governance, social responsibility, and sustainability that
do not produce immediate financial results
Balancing Stakeholder Interests
Quantifying Returns Measuring results of CSR programs has been identified as the greatest challenge to corporations
– Although about 50% of companies see more potential business opportunity than risk to their organization they are struggling to find ways to capitalize on programs in the marketplace
– 71% of companies report publicly on citizenship and sustainability performance, but have difficulty communicating value to stakeholdersa
– 70% to 80% of market value comes from hard-to-assess intangible assets such as brand equity, intellectual capital, and goodwill, organizations are especially vulnerable to anything that damages their reputationd
Measuring Results
Deloitte’s approach to CR strategy building process
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Rai
se C
SR
iss
ues
to
th
e b
oar
dIm
plem
entatio
n o
f the C
S ag
end
a
CR must be incorporated into existing strategic planning processes.
Environmental Awareness
Local Outreach
International Outreach
Internal Development
Corporate Governance
Corporate Responsibility (CR) Strategy
• The board’s demonstration of desired behavior is critical to the implementation of the CR strategy
• Communication of CR issues to the board is critical in the development and evolution of the CR strategy
EmployeesThe deployment of CR management practices will drive employee engagement and build a sense of individual and collective ownership of the CR Agenda
Business Strategy
CR Agenda
Communication of Expectations
Rewards and Recognition
Consistent Global/Regional
Deployment
Monitor and Control
Role Model Behavior
CR Management Practices
Management practices need to address differences across regions, lines of business, business units, and geographies. For example, interpretation of CR differs for a business unit located in the US versus Europe and prioritization of CR issues differ for lines of businesses such as financial services or healthcare in the same corporation.
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Methodology of implementing strategic approach to CR
Phase IPreparatory
Phase IIImplementation
Phase IIIOperational
1st Stage
Pre-audit of Corporate Responsibility procedures and
activities
3rd Stage
Determination of communication rules with stakeholders
5th Stage
Support CR system management
6th Stage
Sustainability Report audit4th Stage
Establishment of formal CR function
2nd Stage
Development / adjustment of Corporate Responsibility policy
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Deloitte’s CR tools
Tools used by us were developed on the basis of Deloitte’s experts experience gained over the years as well as international best practices:
The Deloitte Sustainability Scorecard – gives the indications on the way of preparing the report, content of the report and form of the final report. It allows for a overall view and captures all CR areas and issues based on the 6 categories that include 30 indicators.
Deloitte’s Good Practice Model – allows for the analysis and assessment of current CR area’s situation at the same time identifying these activities that require improvement.
ERA (Deloitte Enterprise AssessmentTM) – this is a methodology that allows to identify and assess risk in organizations. It facilitates prioritizing of CR areas in regard to organization's business strategy.
Deloitte Sustainability Assessment Model – enables the organization's quality assessment in regard to social responsibility and sustainability. Allows for identification of the competitive advantage areas as well as those of the poor quality.
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Green Building Retrofit Research Study
Tyler Jones
Sam Milton
Josh Nothwang
Deloitte Consulting
July 27, 2007
Deloitte’s global network of CR&S services
More than 200 practitioners in more than 20 countries world-wide (70 practitioners in Europe), led by Eric Hespenheide, partner US.
– Focus on Assurance lead by Preben J. Soerensen (Partner, DK)
– Focus on GHG services lead by Pat Concessi (Partner, CAN)
– Engineers and auditors, environment and sustainability experts
Yearly international conference of CR&S network
– Firenze 2003, Paris 2004, Toronto 2005, Madrid 2006, Copenhagen 2007
Intense representation internally and externally
Member of World Economic Forum
Member of World Business Council for Sustainable Development
Signatory to the Global Compact
Member of the Global Reporting Initiative (GRI) Board of Directors
Strong collaboration with audit, risk and management consulting, and corporate financial services to offer innovative, multi-disciplinary service
Benefits for a company
Potential companies’ features that influence CSR
Companies with negative brand image
– PKN Orlen, TP, Provident, PZU, Kompania Węglowa, Tesco, Jeronimo Martins (Biedronka), J&S, Prokom, Microsoft
Organizations conducting „sensitive business” exposed to social disapproval
– (tobacco) BAT, Philip Morris, (military) Bumar, International Technologies, (alcohol) Grupa Żywiec, Kompania Piwowarska, Sobieski, Polmos
Companies with the dominant market share e.g. former state owned entities
– PZU, TP, KGHM, PKP, Telewizja Polska
Enterprises conducting mergers, transformation or rebranding
– Bosh-Siemens, Alcatel-Lucent, Nokia-Siemens, PEKAO (BPH part), Polpharma,
Companies with comparable products and services difficult to promote or with advertising limitations
– (energy) RWE Stoen, PSE, Vattenfall, PGE, Tauron, (pharmaceuticals) Bayer, Polpharma, GlaxoSmithKline, Polfa, Novartis, Servier
Companies acting on highy competitive and price sensitive market
– (mobile) Polkomtel, PTK Centertel, PTC, (financial advisory) Expander, Open Finance, (banks) Polbank, PKO BP, PEKAO, Millenium, BRE, Eurobank, Provident
Companies with environment sensitive products or activity
– (fuel) Shell, PKN Orlen, Lotos, BP, Statoil, (energy) Vattenfall, Elektrownia Kozienice, (chemicals) Zakłady Azotowe Puławy, Ciech
International corporations entering foreign market with imported CR strategy – not adjusted to local business environment
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Implementing strategic approach - advantages for companies
Business Risk Reduction
Anticipation and counteraction of legal, personal, environmental, corporate image and operational risks
Well managed CR activity influences customers trust and employees loyality
CR is no longer a single PR activity but perceived as long-term investment became the dynamic developing philosophy of conducting business in modern world
Investors are more likely to invest in companies with long-term strategy based on system of values that secures sustainable development and reduces business risks
Following FTSE4Good and Dow Jones Sustainability, different stocks create new indexes designed to measure the performance of companies that meet globally recognized corporate responsibility standards and to facilitate investment in those companies
Obedience to CR values will definitely transform from company’s competitive advantage today into obligatory standard tomorrow
Long-term stable growth
Increase in company’s value
Obtaining competitive advantage
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Implementing strategic approach - advantages for companies
„Desired” employer
Professional CR strategy increases employee satisfaction, loyalty and motivation in more effective way with non-salary factors
Better reputation positively affects recruitment process (EU open labor market makes it more challenging for employers in CEE countries)
Corporate image advertising campaigns based on and CR policy are being implemented by many companies in order to strengthen brand perception
Growth in the affluence of the Polish society makes the customer choice less price sensitive in favour of brand awareness
External and professional assurance guarantees balanced and reliable assessment as opposed to the „flattery” internal reports
Companies with professional CR strategy and reporting are better perceived by external environment (authorities, media, partners) while acquiring new markets as well as conducting mergers and acquisitions
Better and cost effective
marketing
Fair judgment
Expansion benefit
Meeting industry requirements
Companies with no professional CR regulations are excluded from cooperation with companies that obey CR values at all levels (partnerships, supply chain)
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O Deloitte
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