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Take up the challengeLuxembourg Sustainability Yearbook 2010

www.pwcsustainability.lu

This report sets out a comprehensive assessment of where Luxembourg stands on the Sustainability agenda.

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This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers S. à r. l., its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.PwC Luxembourg (www.pwc.com/lu) about 2000 professionals from 53 different countries. PwC (www.pwc.com) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for our clients and their stakeholders. More than 163,000 people in 151 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice. “PwC” refers to the group of independent firms that are members of PwC International network, each of which is a separate and independent legal entity.

“PwC” is the brand under which member firms of PricewaterhouseCoopers International Limited (PwCIL) operate and provide services. Together, these firms form the PwC network. Each firm in the network is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way.

© 2010 PricewaterhouseCoopers S. à r. l. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers S. à r. l., which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

Take up the challenge, Luxembourg Sustainability Yearbook 2010 1

Table of Contents

Foreword 2Executive summary 4Statistical analysis 10

1. Sustainability awareness: Where does the business community stand? 12

2. What are business decision-makers anticipating? 16

3. Why is government leadership essential? 22

4. Why are norms and standards so important? 28

5. What lies ahead? And how to move forward? 34

Acknowledgment 41Glossary 42Bibliography 43Contact 44

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Foreword

Marc SaluzziSustainability Leader, PwC Luxembourg

Pol GoetzingerStrategic Partner, Sustain


Corporate Social Responsibility (“CSR”) and Sustainable Development (“SD”) are important trends that affect the competitiveness of companies in Luxembourg. Scarcely on the CEO radar screen a decade ago, environmental and social concerns are now moving at the top of corporate agendas. Why? Today, corporate success is being defined nearly as much by how well a business lives up to community and stakeholder expectations as it is by how efficiently that business provides clients and customers with quality goods and services.

In a fast-changing world that forces companies to re-examine their strategies, Luxembourg Sustainability Yearbook 2010, conducted by PwC Luxembourg in association with Sustain, analyses attitudes amongst the business community towards environmental and social regulation, legislation and taxes.In more than 60 interviews, executives from Luxembourg shared their perspectives on:

• The impact of climate change and the growing social awareness;

• The current environmental and social policy tools and their efficiency;

• The government role in setting up policies and regulations;

• The way they gear up for greater CSR/SD impact.

Companies that aspire to be distinctive and competitive in the global market place must take full advantage of the opportunities offered by CSR/SD. The survey conducted indicates that companies in Luxembourg have not taken sufficient steps to implement effective CSR/SD strategies although good governance practices and social behaviour are emerging.

The survey indicates that they seem to be less prepared to integrate CSR/SD strategies than their European and global counterparts, though they acknowledge the need for effective policies. Another important factor highlighted by the survey is that companies express various concerns depending on their size, sector and headquarters location.

More cooperation amongst the different players of the market place will be required to meet the needs of the present without compromising the ability of future generations to meet their own needs. In this framework, CSR/SD understanding and integration in business strategy is key.

The findings presented aim to develop a better understanding and further utilisation of standards and policy tools in order to identify opportunities for successful partnership.

The world is changing and changing quickly. Many indicators show that our behaviour, as consumers, is evolving, as we take more measures to limit the impact of the goods and services we purchase.

This evolution should drive businesses to adopt and advance sustainability in their strategy.

What is seen today as a way to enhance a reputation, realise costs reductions and manage risks, will become in the very near future a key value driver. Sustainable financial performance and corporate social responsibility initiatives are now considered as joined business drivers. Successful companies of the future will approach these changes as opportunities and embrace them with confidence.

We trust you will enjoy reading this report and find it as interesting and thought-provoking as we have found.

Marc Saluzzi Pol Goetzinger

Executive summary

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Throughout our survey and the analysis of other existing information, we have noted significant differences between Luxembourg and the other countries in terms of sustainability awareness. This peculiar situation must be analysed carefully, as it also reflects a difference in the activities of the surveyed companies (most of the surveyed companies headquartered in Luxembourg are from the non-financial sector while most of the surveyed companies headquartered abroad are active in the financial sector). We have identified that the business community in Luxembourg is presented with a unique paradox:

• on the one hand, most CEOs interviewed recognise that sustainability-related decisions are usually made by the board of directors or the executive committee;

• however, on the other hand, companies in Luxembourg which have already developed a deep sustainability awareness, are mainly not headquartered in Luxembourg. They rarely participate in making sustainability-related decisions, as they are made abroad.

The lack of sustainability awareness of the local decision-makers is undoubtedly one of the reasons why the situation has not significantly evolved since 2008: the business leaders in a position to make sustainability-related decisions are those who are less engaged.

We note as well that companies active in the financial sector are the most active in the CSR/SD field in Luxembourg. This reflects of course the importance of this industry in the country, but it is a specific feature which differs from our observation at the global level: as this industry isn’t a direct polluter, the financial sector is one of the least impacted by the consequences of climate change. It will however have to take the lead as a role model in our country.

This is the first key challenge facing the business community in Luxembourg: how to leverage the tools developed by international companies with a branch or a subsidiary in Luxembourg to accelerate the development of local market awareness? What role should the financial community play to that extent?

Key finding 1: Sustainability awareness is not homogeneously spread within Luxembourg’s business community. What role should multinational financial institutions play?

The lack of sustainability awareness of the local decision-makers is undoubtedly one of the reasons why the situation has not significantly evolved since 2008.

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One of the main reasons why companies in Luxembourg are not as aware of sustainability issues as their international peers, is the lack of reliable tools and information. A vast majority of the surveyed CEOs complain about the lack of efficient frameworks to assess the actual costs and benefits as a result of sustainability initiatives, which could serve as a basis for investment decisions.

As a Luxembourg private banker noted, “The major concern we see is to identify real CSR/SD investments presenting and guaranteeing a sustainable return vs. risk, even if this return is lower than returns from “traditional” investments. We need to make sure these projects are very well managed [...] and to avoid falling into the trap of “green washing” investments or so called CSR/SD funds that are just traditional funds with an additional criteria of investment restriction. We need to pay attention to signals of speculative bubble and avoid repeating history. A few years ago everything that was “.com” was supposed to be profitable. We should not do the same with “green and CSR” companies”. Non-financial sector companies must cope with the same concerns, as a financial director from an education organisation reported: “There is still the perception that sustainable development assets are more expensive [...] Real energy/pollution analyses are not available in Luxembourg”.

In order to take a step forward towards sustainability in Luxembourg, specific efforts will be necessary in terms of transparency and clarity.

As most CEOs already believe that aligning their businesses with sustainability will lead to a competitive advantage or generate more return in the future, some of them have geared up for it by implementing the available tools and some interesting initiatives have already been set up:

• In a socially responsible perspective, as a private banker reported: “We are currently developing products in this matter and the products we offer as a dealer are going to that direction as well. Internally we aim at developing a CSR policy both for the management of the company and for the infrastructure”;

• In an environmental impact and energy management perspective, as an executive of a large retail group reported: “All our electricity comes from a green source in Belgium (and under preparation from Luxembourg). Our new buildings have been made “low energy consuming” and we have put doors on the coolers in our supermarkets. Environmental issues are considered for material investments, constantly improved energy & fuel saving policy, waste management programme and recycling”.

This clearly demonstrates that development of sustainable initiatives is closely linked to development of appropriate tools allowing to assess the impact of actions taken on costs and benefits.

In a context where numerous norms and indicators are created by international (Global Reporting Initiative for reporting, ISO 26000 for management systems, etc.) and local bodies (Institut National pour le Développement Durable et la Responsabilité sociale des entreprises), this situation creates the second major challenge facing the Luxembourg business community: how to create databases and tools that will give business leaders accurate information to make the best decisions? Should these tools be tailored to local needs and/or compliant with best international practices?

Key finding 2: The lack of reliable tools to assess the impact of CSR/SD initiatives on businesses is slowing down the adoption of sustainability practices in Luxembourg.

The development of sustainable initiatives is closely linked to the development of appropriate tools allowing to assess the impact of actions taken on costs and benefits.


Companies affirm that the government exerts a strong influence on their business in the sustainability area: regulation and legislation could lead the business community towards the best way for sustainable development. However, those policies will only be widely supported if they are clear and consistent with the principles of CSR implying the economic, social and environmental points of view. Thus, the government is expected to set the tone and lead the way in taking legal and regulatory initiatives.

Since the Rio conference in 1992, Luxembourg’s Government has launched initiatives to move the country towards a more sustainable behaviour. The “Plan National pour un Développement Durable” (PNDD) adopted in 1999, followed by the set up and monitoring of sustainability indicators on the three pillars (environmental, social and economic) of CSR lays the foundations for an ambitious programme. One of the latest available international benchmarks (“Living Planet Report” issued by the WWF in 2010 for example) however shows that there is still a long way to go: Luxembourg remains one of the less sustainable economies of the industrialised world.

Created by the law of 25 June, 2004 both the “Conseil Supérieur pour le Développement Durable” and the “Commission interdépartementale du Développement Durable” have teamed up with the Ministry of Sustainable Development in order to promote a more transversal and comprehensive approach to promote CSR in the Grand Duchy: the governance of public institutions and the international responsibility of Luxembourg are now considered in the finalisation of the second PNDD (PNDD2).

This strategy creates new challenges for public decision makers, in terms of communication and guidance for Luxembourg citizens and businesses, especially in the context of an evolving European framework.

Several tools are used by the Luxembourg Government to favour sustainable behaviour, such as energy and transport taxes, guaranteed electricity prices for certain renewable energy production sources, or incentives for waste water treatment units: should other tools also be considered? How to coordinate with neighbouring countries creating environmental and social policies?

As a matter of fact, surveyed companies recognise that ambitious emission targets, backed by legally binding frameworks, which may include regulations, taxes and emissions trading schemes could be efficient solutions. Nevertheless, they recognise as well that these measures should come within the scope of a comprehensive long-terrn investment strategy.

This creates new opportunities for the business community: how to create effective mechanisms to ensure a close collaboration and form a “connected thinking” mindset between business leaders and policy makers? How to match market needs to community expectations?

Key finding 3: The role of the government is essential in CSR/SD development. Business leaders are looking forward to being associated to the set up of future policies.

This strategy creates new challenges for public decision makers, in terms of communication and guidance for Luxembourg citizens and businesses, especially in the context of an evolving European framework.

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Current policy attention has mainly focused on environmental management in commercial and trade companies, with additional policy tools aimed at promoting quality management. In parallel, growing attention is being given to support adaptations, as well as strategies to gain effective national engagement in reducing carbon emissions. One significant obstacle impeding consensus is the concern about the potential efficiency of these policy instruments.

With growing consensus on climate change and international pressures, many companies are wondering how to address climate change. They question as well to what extent the development of recognised frameworks and norms are playing a significant structuring role.

Sustainability raises both behavioural and managerial questions. If the former can be addressed by regulation, taxes and incentives, prior experiences have proved that norms and voluntary frameworks are necessary to favour the latter.

For the adoption of quality standards, norms such as ISO 9001 have played a major role, aside from public grants and other incentives. Norms will very likely play a key role too in making sustainable changes happen. They provide at the same time a clear, measurable and comparable system, which ease change management and help assess best practices across the community.

A vast majority of surveyed companies is supportive of voluntary agreements and standards that encourage businesses to go beyond legal compliance without any restriction. A key challenge lies in branding and image: surveyed businesses wish to be recognised for their initiatives and becoming more visible through these.

Despite the fact that the business community is supportive of benchmarks, standards, measures and policy frameworks, few of them, however, think that certification programmes or labels will facilitate the implementation of CSR/SD strategies for the moment. The existing frameworks are not clear and operational enough for being truly relevant.

We expect the new ISO 26000 standard, which has just been adopted, to play a peculiar role in facilitating the adoption of sustainable practices in Luxembourg: it is intended to promote common understanding in the field of social responsibility and to complement other instruments and initiatives for social responsibility, not to replace them.

We note in addition that ISO 26000 has been initiated by the “Comité pour la Politique en matière de Consommation” (COPOLCO), which has embedded consumer input into working out this standard. As the enhancement of consumer/producer relationship is at the heart of it, ISO 26000 is therefore in accordance with one of the main concerns of businesses: client satisfaction. In fact, one of the main targets of this norm is to improve client – business relationships through enhancing trust and satisfaction. It will help to increase the effectiveness of customer care, customer relationship management or even crowd sourcing. ISO 26000 could therefore, through a better customer relationship, contribute to increase businesses’ performance.

This is another key challenge on the sustainable agenda of Luxembourg: how to design norms tailored to the needs of companies in Luxembourg while participating in international efforts? What role should the government play in promoting these norms? How should the ISO 26000 standard move forward and how can it help companies adopt it?

Key finding 4: Although they have not been largely adopted so far, the business community is supportive of norms and standards as long as they provide clear and measurable guidelines to assess best practices.

A key challenge lies in branding and image: surveyed businesses wish to be recognised for their initiatives and becoming more visible through these.


Companies in Luxembourg favour, from a corporate point of view, an emission trading scheme as a way to encourage environmental behaviour. However, they believe that regulation and taxes (incentives/charges) are the most efficient tools.

Even though an emission trading scheme could be a very effective way to reach a climate deal, its efficiency is currently being affected by the economic crisis. The global recession has lowered the majority of industry interest - covered by EU Emission Trading Scheme (ETS) - in taking active steps to remain beneath the ETS’s 2012 cap.

Conversely, carbon tax is easier to understand, more equitable and above all, disregards any economic circumstances.

When it comes to the most effective way of getting business community to reduce its impact on the environment, businesses clearly see the answer to lie in a mixture of ‘carrot and stick’: providing economic incentives or a reward-based market system for achieving reductions in parallel to taxes and regulations.

Very few companies in Luxembourg are already paying a compulsory form of carbon tax. As regulation/legislation is one of the main factors that could change the environmental behaviour of a company, this result shows there is room for Government action.

When questioned about what they would do if they were responsible for encouraging businesses in their countries, most of them mentioned tax charges and incentives.

The companies surveyed recognise tax charges and law/regulation as effective tools to reduce the environmental/social impact of their business. They stressed however that the government should redirect funds raised from those taxes to green/environmental projects.

This is the fifth challenge the community has to deal with: how to establish efficient goals and mechanisms to reduce environmental impact? How to create sufficient interaction and confidence between regulatory bodies and business leaders to tailor these goals to Luxembourg specificities?

Key finding 5: Businesses consider a combination of ‘carrot and stick’ to be the most effective solution to encourage environmental and social behaviour.

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About the surveys

We have based our analysis on both Luxembourg and global sources. Four separate surveys were carried out by different players and used as the basis of our analysis.

Figure 1: Companies surveyed by PwC Luxembourg: size

Up to 100 employees

101-250 employees

251-500 employees

501-1000 employees

1001-2500 employees

2501-5000 employees

Over 5,000 employees

9%

38%12%

5%

11%

14% 11%

The PwC Luxembourg Survey, “Take up the challenge, Luxembourg Sustainability Yearbook 2010”PwC Luxembourg conducted 64 interviews in Luxembourg most of which were held in face to face meetings of forty-five minutes to one hour. Respondents are the employee in the organisation responsible for or most likely to endorse environmental/social impact. Fieldwork kicked off in July 2010 and ended in November 2010. The quantitative results have been analysed by several working groups involving professionals of the Luxembourg business community, from various industries and sectors of the economy (see fig.1, fig.2, fig.3).


The Sustain Survey, “La future norme ISO 26000: un accélérateur de la mise en place de programmes RSE dans les entreprises grand-ducales” (17 May 2010)Sustain conducted its own survey and collected the views of 155 CEOs in Luxembourg, both in the public and private sector, embracing various industries and sectors of the economy. The fourth part of this section “Why are norms and principles so important?” is exclusively based on these results.The goal of the survey was to get the involvement degree of the Luxembourg economic players towards sustainability and norms. It also aimed to identify the drivers and the barriers about the adoption of the future ISO 26000 norm. This survey was conducted in association with Quest.

The PwC Global Survey, “Appetite for change” (January, 2010)This survey was done out by PwC’s network. It comprises of 654 interviews worldwide and covers 15 countries: US, UK, France, Germany, Netherlands, Spain, Sweden, Czech Republic, China, Canada, Russia, Brazil, India, South Africa and Australia.

The CEPS/INSTEAD Survey (2008):CEPS/INSTEAD carried out a survey in association with IMS Luxembourg (Institut pour le Mouvement Sociétal) in the last quarter of 2008. It was addressed to companies of more than 10 employees from nearly all the industries. In a population of 3296 companies, a sample of 2511 of them has been identified. Within this sample, CEPS/INSTEAD has been able to carry out 1144 valid interviews.

Figure 3: Companies surveyed by PwC Global(“Appetite for Change”): size

≤ 250 employees

251-1000 employees

1001-5000 employees

Over 5000 employees

25%

19%26%

30%

Figure 2: Companies surveyed by Sustain: size

0-10 employees

11-30 employees

31-100 employees

101-250 employees

Over 250 employees

19%

19%14%

28%

20%

Statistical analysis

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Sustainability awareness: where does the business community stand?

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Sustainability awareness: where does the business community stand?

In harsh economic circumstances, many companies have toned down their green initiatives, but there are signs showing that the battle against climate change is gaining momentum once again.Figure 4 echoes the results obtained in 2008 by CEPS/INSTEAD1. Sustain2 found similar results earlier in 2010. These figures tend to prove that the situation in Luxembourg has not significantly changed since 2008, despite the increasing global concerns on sustainability issues.

Half of the surveyed companies claim that potential cost savings is a very influential factor on their environmental behaviour (see fig. 5). The other influential factors are “managing a corporate reputation”, “complying with legislation and regulation” and “attracting/retaining clients and investors”. These results are close to the figures obtained at a global level3, which tends to prove that sustainability driving forces are relatively independent from local frameworks.

This situation is, however, hiding a quite surprising finding. It appears indeed that the factors mentioned above have significantly less influence for companies headquartered in Luxembourg than for the companies headquartered abroad. This discrepancy had not been investigated in the previous survey. It undoubtedly creates a specific challenge for the business community in Luxembourg as it tries to enhance local market sustainability awareness.

22%

12%

20%

10%

18%

8%

16%

6%

2%

14%

4%

0%

18% 20% 17%

Question: Firstly, to date, how much of an impact on the way your organisation conducts its business has the Corporate Social Responsibility and Sustainable Development had? A very big impact/A fairly big impact/Not much of an impact/No impact at all/No opinion. Base: Total (64)

Figure 4: 18% of the respondents claim CSR/SD has had a very big impact on the way they conduct business.

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Figure 5: Very influential drivers are costs, corporate reputation and compliance.Companies headquartered in Luxembourg are less engaged.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Total

Headquartered in Luxembourg

Headquartered abroad

50%35%62%

40%26%50%

38%30%42%

34%26%38%

Potential cost savings from introducing energy efficiency measures

Managing corporate reputation

Complying with legislation & regulation

Attracting and retaining clients/investors

Question: Here is a list of factors which may potentially influence your organisation’s environmental behaviour, in terms of the efforts made to minimise environmental impact and promote responsible environmental behaviour. For each factor, please could you indicate its influence on decision making by giving it a score from 1 to 5, where 5 means the factor is very influential and 1 means the factor has no impact on business decisions in this area at all. Base: Total (50)


Looking at the sector of activity of the surveyed companies, financial sector companies are more sensitive to CSR/SD issues than their peers from the non-financial sector (see fig.6).

This is in line with the CEPS/INSTEAD study (2008) which states that financial companies are the most active in the CSR/SD field in Luxembourg4. This is of course due to the importance of the financial sector in the Luxembourg economy: the financial market place will have to play a role model in the evolution of the overall community. This is a Luxembourg specific feature, which is different from our observation at the global level where the financial sector is one of the least impacted in a worldwide perspective by the consequences of climate change5.

Compared to a dozen other behavioural drivers, cost savings, corporate reputation, compliance and attractiveness are viewed as the most influential.


Financial sector companies are more sensitive to CSR/SD issues than their peers from the non-financial sector.

Figure 6: Very influential drivers are costs, corporate reputation and compliance.Non-financial sector companies are less engaged.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Total

Non-financial sector companies

Financial sector companies

Potential cost savings


Complying with environmental legislation & regulation


50%42%58%

40%31%50%

38%31%46%

34%27%42%


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What are business decision-makers anticipating?


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What are business decision-makers anticipating?

While gaining competitive advantage is not currently a key driver for business leaders making sustainability-related decisions, compared to more short-term factors (cost savings and regulations), the situation is likely to change in the near future. This outcome, in accordance with the results obtained by Sustain6 earlier this year, will undoubtedly be closely monitored by CSR/SD experts.

Figure 7: Most companies believe sustainable management practices will generate more return than traditional ones.

Yes

No

Don’t know

21%

58%

21%

Question: Do you believe sustainable management practices and investments will generate more return in the future than traditional ones? Yes/No/Don’t know. Base: Total (61)

Figure 8: 81% of the respondents believe aligning their business with CSR/SD requirements will lead to a competitve advantage.

Question: Do you believe that an alignment of your actual business into CSR-SD oriented business will lead to a competitive advantage? Yes - 1-year to 2-year perspective/Yes 2-year to 5-year perspective/No/Don’t know. Base: Total (58)

Yes - 1 year to 2 year perspective

Yes - 2 year to 5 year perspective

No

Don’t know

45%

9%

10%

36%


Once more, the financial sector seems to be better at using the available tools than the non-financial sector companies. They are more likely than their non-financial peers to have a CSR/SD strategy or officer (see fig. 9 and 10).

The speed of transformation is increasing, as many executives report pressure from customers, investors and employees to make their business more sustainable. A growing number of businesses expect to be affected by climate change and they are developing strategies to respond.

Corporate climate change strategies will affect operations, key performance indicators and innovations around new products and services.

Question: Does your institution dispose of a Corporate Social Responsibility and Sustainable Development strategy? Yes/No Base: Total (55)

Figure 9: Majority have already developed CSR/SD strategies.

0%

10%

20%

30%

40%

50%

60%

70%

80%

58% 50% 68%

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0%

10%

20%

30%

40%

50%

43% 37% 48%

Question: Has your organisation specifically designated a CSR-SD officer?Yes/No Base: Total (61)

Figure 10: Just under half have appointed a CSR/SD officer.

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For most surveyed businesses, reducing their carbon footprint will require the integration of carbon and energy management systems with operations and key performance indicators. Rather than being just an annual number crunching exercise, these systems will generate investment decisions and therefore need to be readily available and efficient.

Once again, there is a discrepancy present between companies headquartered in Luxembourg and companies headquartered abroad: subsidiaries of international groups are more prepared than local companies (see fig. 11).

This reinforces the specific paradox identified before: embedding sustainability in our business behaviour will require long-term and constant investment from decisions and policy makers in Luxembourg and Europe.

0%

5%

10%

15%

20%

25%

30%

17% 27%

Question: Does your institution dispose of a Corporate Social Responsibility and Sustainable Development strategy? Does your institution dispose of a Corporate Social Responsibility and Sustainable Development Charta? Has your organisation specifically designated a CSR-SD officer? Yes/No Base: Total (55)

Figure 11: Companies headquartered abroad are more prepared for the change. They are more numerous to have a CSR/SD strategy, charta and officer.

Com

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head

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Subsidiaries of international groups are more prepared than local companies.


For long-term or strategic investments in infrastructure or energy projects (producing and consuming), companies need to understand specificities of different policies, carbon price and climate scenarios as most of them claim their investments are impacted by CSR/SD (see fig. 12).

Business executives are currently considering reputation as the second most important influencers on environmental behaviour after cost savings, but the influence of other operational and strategic issues, such as products/services are likely to grow as shown in the figure 13. Similar results have been obtained for infrastructures and brands.

Question: Does Corporate Social Responsibility/Sustainable Development impact your investment policy? Yes/No/Don’t know. Base: Total (50)

Yes

No

Don’t know

Figure 12: Majority feel CSR/SD impacts their investment policy.

72%

18%

10%

Question: How do you assess the impact of Corporate Social Responsibility and Sustainable Development on your produts and services? Very high/Reasonable/Not very high/Don’t know Base: Total (52)

Figure 13: Companies reporting a very high impact of CSR/SD on their product/services.

0%

10%

20%

30%

40%

50%

Total Financial sector

companies

Non-financial sector

companies

38%21%29% 50%39%44% 1-2 years

2-5 years


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Why is government leadership essential?


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Why is government leadership essential?

Although companies in Luxembourg feel that cost savings and corporate reputation management are the most effective drivers for encouraging businesses to reduce their environmental impact, they also noted regulation and legislation as key influencers over behaviour related to climate change (see fig. 14).

Indeed, governments exert, through legislation, tax and regulation a growing influence on environmental and social practices.

Compared to Luxembourg results, regulatory compliance is viewed by 57% of the worldwide business community as a very influential behavioural driver7.

Even if regulatory compliance is not as influential in Luxembourg as in the rest of the world, it still has a similar influence in the decision making process.

Figure 14: Compliance with legislation and regulation stands among the very influential drivers.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

50%

40%

38%

34%

30%

28%

Potential cost savings from introducing energy efficiency measures


Complying with legislation & regulation


Desire to lead the field in this area

Need to keep up with competitors who are ahead of you in this area



Business leaders believe that stable, properly enforced policies protect fair competition and facilitate long-term planning. Put simply, businesses want to be assured that their international peers are helping to bear the costs and responsibilities of changing environmental behaviour.

But how do those business leaders assess the efficiency of current government policies?

Compared to non-financial companies, the financial industry for the most part recognises the effectiveness of government policies. They are twice as likely to assess the government’s action as very effective in significantly changing behaviour and three times more likely to assess it as very effective in providing signals (see fig. 15).

In the battle against climate change, government leadership is indispensable.

Figure 15: Very few businesses generally believe that existing environmental policies are very effective.

0% 3% 6% 9% 12% 15%



Total

8%4%6%

13%4%8%

Significantly change behaviour

Providing signals

Question: Thinking of current government policies, in relation to environmental economic instruments (such as tax, incentives and trading schemes), how effective or ineffective do you feel it has been in providing signals and encouraging business to significantly change its environmental behaviour? Very effective/Fairly effective/Not very effective/Not at all effective/Don’t know. Base: Total (50)

Business leaders believe that stable, properly enforced policies protect fair competition and facilitate long-term planning.

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Question: There are a number of ways the Government can engage businesses to minimise and reduce their environmental impact. Please could you tell me how effective you feel each of the following tools are/would be at encouraging your business to reduce its negative or increase its positive environmental and social impact, using the scale. Very effective/Fairly effective/Not very effective/Not at all effective. Base Luxembourg: Total (50); Base Global: Total (654)

Figure 16: A combination of tax incentives and regulation/tax charges is considered to be very effective.

0%

10%

20%

30%

40%

50%

Regulation Tax charges Voluntary agreements

Tax incentives Market trading schemes

28% 6%32% 12%34% 37% 11%46% 21%50%

Luxembourg

Global

Through legislation and regulations, government exerts one of the strongest influences on businesses.

Over the question “How effective do you feel those tools are/would be at encouraging your business to reduce its negative or increase its positive environmental and social impact?” Companies in Luxembourg express the same concerns as the rest of the world. However, companies in Luxembourg are more sceptical about the effectiveness of these policy tools (see fig. 16).

Companies in Luxembourg are more sceptical about the effectiveness of these policy tools.


Through legislation and regulations, government exerts one of the strongest influences on businesses.

In Luxembourg, few companies agree that the Government/EU has clear, coherent policies with regards to environmental economic instruments, e.g. tax, incentives and trading schemes (see fig. 17). Globally, the results are slightly higher8.

Very few of the surveyed companies believe there is connected thinking within the government and bodies & agencies concerned with environmental economic instruments, e.g. tax, incentives and trading schemes.

Government therefore should communicate more about its policies and make them clearer and more consistent in order to make them recognised.

Figure 17: Less than half of businesses strongly or slightly agree withthe government’s current approach

0% 5% 10% 15% 20% 25% 30% 35%

34%

34%

34%

30%

16%

10%

Governments have a clear, unambiguous policy with regard to environmental economic instruments (e.g. tax, incentives and trading schemes)

I feel confident about making long term investment & business decisions based on our current Governments’ environmental economic instruments (e.g. tax, incentives and trading schemes)

Governments engage effectively with businesses to ensure its environmental policies take industry views into account

Governments have a consistent, long term, environmental tax and/or regulation policy

I am confident there is ‘joined up thinking’ between the various governments’ departments, bodies & agencies concerned with environmental economic instruments (e.g. tax, incentives and trading schemes)

Governments are giving sufficient priority to addressing business issues in relation to CSR-SD

Question: Considering the environmental tax and regulation framework applicable in the countries where your business and operations are located, how strongly do you agree or disagree. Strongly agree/slightly agree/slightly disagree/strongly disagree/don’t know/don’t care. Base: Total (50)


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Why are norms and standards so important?


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Why are norms and standards so important?

This section of the report is based on a survey conducted by Sustain in 2010. With more than 150 respondents among public and private sectors, it gives a clear picture of the opinions of the companies in Luxembourg on existing norms and on their expectations. Specific attention has been given to ISO 26000 standards, which has just been adopted by the International Organisation for Standardisation (ISO).

Luxembourg turns out to be a favourable environment to launch standards.

The support for certification standards among the business community seems anchored in Luxembourg.

Half of the businesses that responded to the survey have already participated in certification programmes (see fig. 18):

• SuperDrecksKëscht® has been implemented in 52% of those companies. It is ISO 14001 certified, which is an internationally acknowledged quality standard for the environmental management in commercial and trade companies. SuperDrecksKëscht® has widespread support in the business community in Luxembourg.

• ISO 9000 has been implemented in 35% of those companies and is a family of standards for quality management.

As a majority of businesses are already involved in certification programmes, they are more likely to support frameworks or other standards of certification.

Despite the fact that the business community is supportive of benchmarks, standards, measures and policy frameworks, a low proportion feel that certification programmes or labels will be effective in encouraging long-term planning (see fig. 19).

0%

10%

20%

30%

40%

50%

60%

70%

80%

50% 46% 61%

Question: Has your company ever been involved/participated in certification programmes? Yes/No. Source: Sustain 2010. Base: Total (155)

Figure 18: Half have already participated in certification programmes.

Total Private Public

Figure 19: Few think certification programmes or labels will help.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

16% 66% 18%

14% 66% 20%

25% 67% 8%

Total

Private

Public

Question: Do you think that policy tools or CSR/SD framework would encourage and develop CSR/SD strategies in your company? Yes/Maybe/No. Source: Sustain 2010. Base: Total (155)

Yes

Maybe

No

Most surveyed businesses wish to be recognised for their voluntary initiatives.


Luxembourg turns out to be a favourable environment to launch standards.

A vast majority of the business community is supportive of voluntary agreements. Standards that encourage businesses to go beyond legal compliance without any restriction will meet their expectations (see fig. 20).

Luxembourg respondents express mixed opinions on certifying the future standard.For example private sector businesses are less concerned about a certified standard. But, an overwhelming majority of the public sector surveyed organisations see certified standards as potentially necessary (see fig. 21).

Generally, this chart reveals that most surveyed businesses wish to be recognised for their voluntary initiatives, e.g. by certification, audit or incentives. This would also help them leverage their efforts in terms of marketing and communication. It is not very clear that surveyed businesses believe the future standard should be internationally acknowledged (see fig. 22).

If not specifically designed for Luxembourg purposes, the adoption of this standard by the community will require time and guidance, as well as adapted management tools.

Figure 20: Organisations express support for voluntary agreements.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

91% 9%

81% 19%

Private

Public

Question: How should the future tool be? Voluntary/Compulsory? Source: Sustain 2010.Base: Total (155)

Voluntary

Compulsory

Figure 21: The majority of surveyed organisations see certified standardsas necessary.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

56% 44%

72% 28%

Private

Public

Question: How should the future tool be? Certifiable/An orientation framework.Source: Sustain 2010. Base: Total (155)

Certifiable

An orientation framework

Figure 22: Organisations express mitigated opinions about the need for an internationally adapted standard.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

52% 48%

42% 58%

Private

Public

Question: How should the future tool be? Locally adapted/International standard.Source: Sustain 2010. Base: Total (155)

Locally adapted

International standard

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The overwhelming majority think the future standard should complement other instruments and initiatives for social responsibility (see fig. 23).

Figure 23: Need for a standard supportive of other standards.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

76% 24%

83% 17%

Private

Public

Question: How should the future tool be? Supportive of other standards/Additional tothe existing standards. Source: Sustain 2010. Base: Total (155)

Supportive of other standards

Additional to the existing standards


Luxembourg respondents express rather little support for ISO 26000 as an effective tool for encouraging organisations to develop CSR/SD strategies.

Indeed, just a very few of the surveyed companies in Luxembourg expect their business to experience changes as a result of ISO 26000 (see fig. 24). This norm does not make a breakthrough because it is not sufficiently understood.

However, ISO 26000 could meet organisations’ expectations insofar as it is voluntary, supportive of other standards and international: “ISO 26000 is not a management system standard. It is not intended or appropriate for certification purposes or regulatory or contractual use. It is intended to promote common understanding in the field of social responsibility and to complement other instruments and initiatives for social responsibility, not to replace them9.” As ISO 26000 cannot be certified, it will be necessary for companies to be recognised for their voluntary initiatives through audits or incentives.

Question: Do you think that the ISO 26000 norm would encourage and develop CSR/SD strategies in your company? Yes/Maybe/No. Source: Sustain 2010. Base: Total (155)

Figure 24: Only 13% expect their business to experience changes as a result of ISO 26000

Yes

Maybe

No

13%

21%

66%

ISO 26000 could meet organisations’ expectations insofar as it is voluntary, supportive of other standards and international.

Few companies think certification programmes or labels will facilitate the implementation of CSR/SD strategies.


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What lies ahead? And how to move forward?


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What lies ahead? And how to move forward?

From a corporate point of view, companies in Luxembourg favour an emission trading scheme over carbon tax as a way to move forward.

Ideally, businesses in Luxembourg prefer to set up an emission trading scheme compared to carbon tax or a mandatory compensation scheme as a way to encourage responsible environmental behaviour (see fig. 25).

Worldwide, companies are much more likely to support the idea of a market trading mechanism to a tax as the best way to encourage responsible environmental behaviour10.

Figure 25: Companies express their preference for an emission trading scheme.

Question: Thinking about these three different ways of encouraging responsible environmental behaviour, which do you prefer from a corporate point of view? Base: Total (50)

0% 10% 20% 30% 40% 50%

Total



An emissions trading scheme

A carbon tax

A mandatory compensation scheme

Don’t know/neither

28%23%33%

24%23%25%

18%15%21%

30%39%21%


From a corporate point of view, companies in Luxembourg favour an emission trading scheme over carbon tax as a way to move forward.

One of the reasons for such a discrepancy has been observed in other Western industrialised countries: as companies can afford taxes, they keep emitting.

When it comes to the most effective way of getting Luxembourg business community to reduce its impact on the environment, businesses clearly see the answer to lie in a mixture of ‘carrot and stick’. Indeed, companies respond that tax (incentives and charges) and regulation will play a role in achieving targets on greenhouse gas emissions (see fig. 26).

Providing economic tax incentives or a reward-based market system for achieving reductions in the emissions of pollutants seems to be the most efficient method for the non-financial sector whereas surprisingly, the financial sector companies tend to recognise tax charges as most efficient.

This actually reflects the top influencers for sustainability behaviour, i.e. cost reductions and law & regulation.

Question: There are a number of ways the Government can engage businesses to minimise and reduce their environmental impact. Please could you tell me how effective you feel each of the following tools are/would be at encouraging your business to reduce its negative or increase its positive environmental and social impact, using the scale. Very effective/Fairly effective/Not very effective/Not at all effective/Don’t know. Base: Total (50)

Figure 26: Among the ways considered to be very effective, tax and regulation rank first.

Total



Regulation

Tax incentives

Tax charges

34%31%38%

32%31%33%

28%19%38%

Market trading schemes12%4%21%

10%

8%

0% 10% 20% 30% 40% 50%

Promotion of labels and certification

Voluntary agreements

12%

6%8%4%

Businesses clearly see the answer to lie in a mixture of ‘carrot and stick’.

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A great majority of the respondents claim it is very or fairly important for them to see that funds raised from environmental/taxes and regulation are being directed to green environmental projects and initiatives (see fig. 27).

Taxes labelled and promoted as ‘environmental’ are perceived as qualitatively different from those designed to raise general revenue.

Pollution taxes would not only compensate for the failure of the market price pollution, but also essentially reduce it. It would therefore be reasonable to expect that governments should seek to gain the maximum environmental benefit by investing the funds into further pollution reduction measures, which would support the overall policy objective.

Only a few companies are confident that funds raised from environmental taxes are directed to environmental initiatives (see fig. 28).

Figure 27: Companies want funds raised from environmental taxes to be directedto green projects.

Very important

Fairly important

Not very important

Not at all important

No opinion/Don’t know

18%

24%50%

8%

Question: How important do you feel it is for business to see that funds raised from environmental taxes and regulation are being/would be directed to ‘green’/environmental projects and initiatives? Very important/Fairly important/Not very important/Not at all important/No opinion. Base: Total (50)

Figure 28: Only 28% are confident that funds raised are directedto environmental initiatives.

Very confident

Fairly confident

Not very confident

Not at all confident

No opinion/Don’t know

26%

12%

2%

16%44%

Question: How confident are you that funds raised from environmental taxes and regulation are being/would be directed to ‘green’ or environmental projects and initiatives? Very confident/Fairly confident/Not very confident/Not at all confident/No opinion. Base: Total (50)


A great majority of the respondents claim it is very or fairly important for them to see that funds raised from environmental taxes and regulation are being directed to green environmental projects and initiatives.

Pollution taxes would not only compensate for the failure of the market to price pollution, but also essentially reduce it.

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Acknowledgement

“Luxembourg Sustainability Yearbook 2010” report is the first report we have released on this topic. It provides valuable information about the Corporate Social Responsibility and Sustainable Development situation in Luxembourg. We would like to acknowledge all the stakeholders who have contributed to its development for their valuable support and for sharing their experiences in sustainability in Luxembourg. To name but a few, we would like, in particular, to express our sincere gratitude to Karine Grünberg and Carina Da Silva from Jones Lang Lasalle, Laurent Rouach and Laurent Tremuth from PROGroup and to Pol Goetzinger from Sustain, our partner in this publication. We also acknowledge all the respondents to our survey as their participation has been crucial to the success of this initiative.

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Glossary

Carbon footprint Total amount of greenhouse gases produced to directly and indirectly support human activities, usually expressed in equivalent tons of carbon dioxide (CO2).11

Carbon tax Carbon tax is an instrument of environmental cost internalisation. It is an excise tax on the producers of raw fossil fuels based on the relative carbon content of those fuels.12

Corporate Social Responsibility (CSR) Concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.13

Emission Trading Scheme (ETS) Emissions trading is a way of introducing flexibility into a system where participants have to meet emissions targets. These participants may be countries (as in the case of the Kyoto Protocol), or companies (as in the case of a domestic emissions trading scheme). Participants can buy units to cover any emissions above their targets, or sell units if they reduce their emissions below their targets. The presence of a market for these units creates a value for emissions reductions which stimulates investment in the most cost-effective areas.14

Financial sector Sector including Financial Services, Private Equity, Real Estate and Funds Industry companies.

Global Reporting Initiative’s (GRI) Network-based organisation that has pioneered the development of the world’s most widely used sustainability reporting framework and is committed to its continuous improvement and application worldwide.15

INDR Institut National pour le Développement Durable

ISO 9000 Family of standards representing an international consensus on good quality management practices. It consists of standards and guidelines relating to quality management systems and related supporting standards. ISO 9001 is part of this family of standards.16

ISO 26000 Standard intended to assist organisations in contributing to sustainable development.It is intended to encourage them to go beyond legal compliance, recognising that compliance with law is a fundamental duty of any organisation and an essential part of their social responsibility. It is intended to promote common understanding in the field of social responsibility, and to complement other instruments and initiatives for social responsibility, not to replace them.17

Non-financial sector Sector including public and private non-financial sector companies and organisations.

Sustainable Development (SD) Development that meets the needs of present generations without jeopardising the ability of future generations to meet their own needs.18

SuperDrecksKëscht (SDK) SDK provides advice to citizen and businesses. It stresses that waste prevention is of top priority to us and to subsequent generations. It also promotes the environmentally sound recycling of waste and reuse by secondhand shops. Themes consciously chosen in relation to consumption are waste prevention and product life cycle. Reconsumption is at the end: collecting residual waste and recycling as much of it as possible.19


Bibliography

1 Enquête relative à la responsabilité sociale des entreprises, CEPS/INSTEAD,IMS Luxembourg, 2008

2 Sustain, Responsabilité Sociale des Entreprises, 14/09/2010, p.7

3 PwC, Appetite for Change, 2010, p.9

4 Enquête relative à la responsabilité sociale des entreprises, CEPS/INSTEAD,IMS Luxembourg, 2008


6 P. Goetzinger, Analyse et Audit de la Responsabilité Sociale des Entreprises,17 mai 2010, p.80



9 ISO – Guidance on Social Responsibility


11 Time for change, What is a carbon footprint,http://timeforchange.org/what-is-a-carbon-footprint-definition?page

12 United Nations, Glossary of Environment Statistics, Studies in Methods, Series F,No. 67, New York, 1997

13 European Commission, Enterprise and industry,http://ec.europa.eu/enterprise/e_i/index_en.htm, © European Union, 2008 - 2010

14 International Energy Agency, Emission Trading Scheme and CDM,http://www.iea.org/subjectqueries/keyresult.asp?KEYWORD_ID

15 Global Reporting Initiative, What is GRI,http://www.globalreporting.org/AboutGRI/WhatIsGRI/

16 International Organisation for Standardisation/Edition: 3 (Monolingual) ICS: 01.040.03; 03.120.10 Status: Published Stage: 90.93 (2009-03-03)

17 International Organisation for Standardisation,/Edition: 1 (Monolingual) Status: Published TC/SC: TMB/WG SR ICS: 03.100.01 Stage: 60.60 (2010-10-28)

18 United Nations, Report of the World commission of environment and development (Brundtland Report), 1987

19 SuperDrecksKëscht, www.superdreckskescht.lu

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Contacts

Jean-François Champigny

Sustainability Coordinator, Director, PwC Luxembourg+352 49 48 48 [email protected]

Bruno Renders

Strategic Partner, Sustain+352 27 62 02 [email protected]

Laurent Rouach


Pol Goetzinger


Marc Saluzzi

Sustainability Leader, Partner, PwC Luxembourg+352 49 48 48 [email protected]

46 PwCwww.pwcsustainability.lu

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