csr mainconcepts

CSR Main Concepts CSR Fad or reality • •

Basic Information Quotations from Practitioners

What CSR is all about? • •

Basic Information Reading

CSR Main Components • •

Basic Information Case Studies

Triple Bottom Line • • •

Basic Information Readings Quotations

Increased Importance of CSR • • •

Basic Information Case Studies Data

Benefits of CSR • • •

Basic Information Case Studies Readings

Socially Responsible Investment • • • •

Basic Information Readings Case Studies Data

CSR Fad or Reality?

We have to choose between a global market driven only by calculations of short-term profit, and one which has human face. Between a world which condemns a quarter of the human race to starvation and squalor, and one which offers everyone at least a chance of prosperity, in a healthy environment. Between a selfish freefor-all in which we ignore the fate of the losers, and a future in which the strong and successful accept their responsibilities, showing global vision and leadership. Kofi Annan, UN Secretary-General January 1999 Leaders, opinion makers and practitioners from the private and public sector, civil society, international organizations, and media from all over the world are finding themselves increasingly exposed to the below mentioned types of questions and dilemmas.

Is CSR a new flavor of the month?

Is Milton Friedman right? “There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits.”

Is the dilemma: “When money and morality clash, what should a company do?” a real one?

Is the business of business business? Companies should focus on making profits while government should regulate companies to be responsive to social and environmental responsibility…

Is Professor Arlich Steger from IMD right? Companies should aim for “responsible shareholder-value optimization”: their first priority should be shareholders’ long-term interests, but with that constraint, they should meet whatever social or environmental goals the public expects of them.

Selected Quotations by CSR Practitioners Business “CSR is not a cosmetic; it must be rooted in our values. It must make a difference to the way we do our business.” -- Phil Watts, Group Managing Director Royal Dutch/Shell Group “Corporate citizenship is our global commitment, Our knowledge and our solutions create a better world.” -- Siemens AG, HQ in Germany

“AT&T understands the need for a global alliance of business, society and the environment. In the 21st century, the world won’t tolerate business that don’t take partnership seriously, but it will eventually reward companies that do.” -- C. Michael Armstrong, Chairman & CEO, AT&T

Civil Society “Social responsibility is neither a fad nor an optional extra. The interest in it is reflective of a deeper change in the relationship between companies and their stakeholders, including consumers. Faith in the benefits of profits to consumers has halved since the Seventies, as a viable basics of a relationship, that faith has been replaced by a desire to see companies acting as active and responsible citizens. Healthy business requires a healthy community, and should be contributing to its creation and maintenance.” -- Steward Lewis, Measuring Corporate Reputation, 1999 “Global corporate social responsibility entails managing effectively the company’s actual and potential environmental and social impact on the communities in which the firm operates and on society as a whole.” -- David Grayson, President of Business in the Community in Great Britain “The principles for global corporate responsibility call on companies to base their corporate policies on a vision of themselves as one of many stakeholders in the global community and to set high standards of conduct in relation to their employees, the environment, and the communities in which they operate.” -- Reverend David Schilling, Director of Global Corporate Accountability Programs for the New York based Center of Corporate Responsibility. International Organizations “Companies are realizing that it is in their business interest to ‘ do the right thing’ everywhere they operate. Global firms are keenly aware that their long-term investment goals can only be achieved within a stable, healthy and free of social and financial environment. But companies alone cannot solve the challenges associated with social responsibility. They must work in cooperation with governments, civil society groups, development institutions, and citizens.” World Bank “ Corporations have a social responsibility and moral duty to use the power of markets to make globalization a positive force for all” United Nations

“View on corporate responsibility has contributed to mounting pressure on business to demonstrate its social accountability, especially those multinationals which operate in politically and environmentally sensitive regions of the world” The World Business Council for Sustainable Development “I believe that it is part of building good sustainable business to help establish safe, secure, stable and peaceful societies. Business thrives where society thrives” -- Peter Sutherland former Director-General of the WTO, Co-chairman of BPAmoco, Chairman of Goldman Sachs International Media “Our position as the world’s leading media and entertainment company could not have been reached- and could not have been sustained-solely from business success. It rests equally on our tradition of social responsibility and community involvement. At the core of this enterprise is the determination to make a difference as well as a profit.” -- Gerald Levin, Chairman and CEO, Time Warner, Inc.

What is CSR All About? Although the concept of CSR has been developing since the early 1970s, there is no single, commonly accepted definition of CSR. Below we provide some examples of CSR definitions.

"CSR is defined as operating a business in a manner that meets or exceeds the ethical, legal, commercial and public expectations that society has of business. CSR is seen by leadership companies as more than a collection of discrete practices or occasional gestures, or initiatives motivated by marketing, public relations or other business benefits. Rather, it is viewed as a comprehensive set of policies, practices and programs that are integrated throughout business operations, and decision-making processes that are supported and rewarded by top management." Source: Business for Social Responsibility (http://www.bsr.org) "CSR is the continuing 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. (The above definition was developed in 1998 for the first WBCSD CSR dialogue in The Netherlands.)" "CSR is a public movement, which has gained more momentum as citizens demand corporations to be accountable for their impacts. Consumers, investors and employees alike are recognizing the power held by corporations and efforts are being made on several levels to create global change with the hope that earth will become a better place." Source: CSR Wire “CSR is the concept that an enterprise is accountable for its impact on all relevant stakeholders. It is the continuing commitment by business to behave fairly and responsibly and contribute to economic development while improving the quality of life of the work force and their families as well as of the local community and society at large.” Source: European Union “CSR is a term describing a company's obligation to be accountable to all of its stakeholders in all its operations and activities. Socially responsible companies consider the full scope of their impact on communities and the environment when making decisions, balancing the needs of stakeholders with their need to make a profit.” Source: Ethics in Action

“CSR is concerned with treating the stakeholders of the firm ethically or in a socially responsible manner. Stakeholders exist both within a firm and outside. Consequently, behaving socially responsibly will increase the human development of stakeholders both within and outside the corporation.” Source: Michael Hopkins: A Planetary Bargain: CSR Comes of Age (Macmillan, UK, 1998) CSR generally refers to: 1. a collection of policies and practices linked to relationship with key stakeholders, values, compliance with legal requirements, and respect for people, communities and the environment; and 2. the commitment of business to contribute to sustainable development, commonly understood as sustainable development is the ability of the current generation to meet its needs without compromising the ability of future generations to meet theirs. “Corporate Citizenship” which is based on the concept of the corporation as a citizen, is also frequently used while referring to CSR, and is sometimes interchangeably used.

The interpretation of CSR one makes, influences the dialogue between governments, private sector and civil society. This results in different implications among various parties regarding the legitimacy, obligations and impact of corporate social responsibility standards. For example, one has to be careful in understanding and defining the term “CSR” because it is sometimes mistakenly equated with either corporate philanthropy or simply compliance with law. Since mid90’ the business sector has gradually engaged into many actions, which have been traditionally assigned to the sphere of responsibility of the government, yet due to its incapacity, business has taken the lead. Participation in such projects has revealed business as a strategic partner in the process of development, in close cooperation with the government and international institutions.

What is CSR all about? - Suggested Readings ¾ Corporate Citizenship ¾ A Stakeholder Framework for Analyzing and Evaluation Corporations ¾ Business as Partners in Development: Creating Wealth for Countries, Companies and Communities ¾ Building Competitiveness and Communities: How World Class Companies are Creating Shareholder Value and Societal Value ¾ Creating the Enabling Environment for Public-private Partnerships and Global Corporate Citizenship Corporate Citizenship Corporate citizenship is based on the concept of the corporation as a citizen; although not identical with the concept of personal citizenship, still it clearly recognizes that business has right and responsibilities that go beyond short-term profit maximization.

Further information, see: M. McInstosh, K. Jones, G. Coleman, D. Leipziger, 1998, “Corporate Citizenship,” London: Financial Times Management; D. Logan, D. Roy and L. Regelbrugge, 1997, “Global Corporate Citizenship – Rationale and Strategies,” Washington D.C.: The Hitachi Foundation; and C. Marsden, and J. Andriof, 1998, “Understanding Corporate Citizenship and How to Influence It,” Citizenship Studies 2, no.2. A Stakeholder Framework for Analyzing and Evaluation Corporations “Conclusions are presented from a 10-year research program, the purpose of which has been to develop a framework and methodology, grounded in the reality of corporate social performance. The measurement of corporate success has traditionally been limited to the satisfaction of and creation of wealth for only one stakeholder, the shareholder. Stakeholder is not synonymous with shareholder. The economic and social purpose of the corporation is to create and distribute increased wealth and value to all its primary stakeholders groups…” Source: M. Clarson, The Academy of Business Review, 20 (1): 92-117 Business as Partners in Development: Creating Wealth for Countries, Companies and Communities “In the era of economic globalization, political transition and technological transformation, rapid changes are taking place which are bringing more than three billion people into economies operating on market principles. The private sector has become the main engine of growth and development, something which has raised a number of new and fundamental questions about the role of the private sector in sustainable development , in particular for multinational companies: Can profit-driven companies be expected to play a leadership role in sustainable development? What is the role and interest of business in facilitating greater economic and interest of business in facilitating greater economic participation by people on the margins of society? How can business contribute to improve the quality of, and participation in, child-care, education, health care, training and environmental protection? What is expected of business in setting ethical standards, enforcing laws, tackling crime and corruption and building good governance, all of which can contribute to successful business?” Source: PSDP, PWBLF, and World Bank Building Competitiveness and Communities: How World Class Companies are Creating Shareholder Value and Societal Value “The subject of corporate leadership and reputation in a global economy is in the spotlight as never before. The role of private enterprises and their leaders will pay an increasingly pivotal role in shaping economic, social and environmental progress around the globe. The way in which these enterprises and their leaders will approach this role will have important implications for everyone. What is becoming clear is that the leadership companies of the future will be those that base their missions and corporate strategies around measuring and managing value. Not only building shareholder value-added but as an integral part of that same process also recognizing the potential for building societal value-added. This publication takes an in-depth look at how companies are managing this process of creating share-holder and societal value.” Source: PSDP, PWBLF, and World Bank Creating the Enabling Environment for Public-private Partnerships and Global Corporate Citizenship

“As the role of the private sector becomes increasingly central to global growth, governance and development there is a strong need to ensure that private interest is matched with public good. But neither global corporate citizenship nor public-private partnerships are easy to achieve. One of the main challenges is to create an enabling environment within which these two inter-related activities can flourish. Source: PSDP, PWBLF, and World Bank

CSR Main Components The scope of CSR is conceptually quite unbound at the present time. The debate between the private sector, civil society and governments focuses on a few key issues. As there is no single, commonly accepted definition of CSR, there is also no commonly accepted classification of the main components of CSR. Often, CSR is related to: Environmental protection - The focus is on finding sustainable solutions for natural resources use to reduce company’s impact on the environment. Over the past several years, environmental responsibility has expanded to involve substantially more than compliance with all applicable government regulations or even a few initiatives such as recycling or energy efficiency. Many citizens, environmental organizations and leadership companies now define environmental responsibility as involving a comprehensive approach to a company's operations, products and facilities that includes assessing business products, processes and services; eliminating waste and emissions; maximizing the efficiency and productivity of all assets and resources; and minimizing practices that might adversely affect the enjoyment of the planet's resources by future generations. For further information, please visit: Business for Social Responsibility (BSR), CSR Forum, CSR Wire Labor Security - It includes freedom of association and the effective recognition of the right to collective bargaining; the elimination of all forms of forced and compulsory labor; the effective abolition of child labor; and the elimination of discrimination in respect of employment and occupation. For further information, please visit: BSR, CSR Wire, CSR Forum Human rights – Business practices can profoundly effect the rights and dignity of employees and communities. The main focus is on developing workplaces free from discrimination where creativity and learning can flourish decent codes of professional conduct, and where a proper balance can be maintained between work and other aspects of our lives. Behaving irresponsibly on the issue of human rights could be costly because their reputation and bottom line is at stake. This is also related to globalization and increasing international trade and the challenge of findings ways of doing business world-wide that respect human rights and social justice and facilitate the appropriate development of the emerging economies. Countries are expected to support and respect the protection of international human rights within their sphere of influence; and sure their own corporations are not complicit in human rights abuses. Paying workers a living wage and protecting them from harassment may cost a little more in the short run, but if it improves morale and reduces turnover then it may still be good for profits after a few years. So socially responsible management practices may contribute directly to profits. For further information, please visit: CSR Forum, UN Global Compact, BSR, CSR Europe Community involvement - It includes: community partnership, employee giving, global community involvement, philanthropy, product and services donations, release time, volunteerism etc. Corporate community involvement refers to a wide range of actions taken by

companies to maximize the impact of their donated money, time, products, services, influence, management knowledge and other resources on the communities in which they operate. When strategically designed and executed, these initiatives not only bring value to recipients, but also enhance the reputation of companies and their brands, products and values in local communities where they have significant commercial interests -- as well as around the world. To learn more about business involvement in poverty alleviation, please see Module 5: CSR and the Poor. For further information, please visit: BSR, CSR Wire Business standards cover a broad area of corporate activities such as ethics, financial returns, environmental protection, human rights and labor standards. The standards are usually accepted at corporate, business association, industry or country level. The rise of international trade, globalization, and instant communication has led to increasing pressure from various groups for the formation of global business conduct standards. In response to their concerns, different standards have been proposed and created. This has led to many different questions: which standard is the "best"?; are there any real benefits to compliance with a global standards?; can a global standard be universal?; can compliance with a global standard be audited? and if so, who, if anyone, should monitor compliance? Source: UNCTAD, “Foreign Direct Investment and the Challenge of Development,” World Investment Report, 1999. For further information, please visit: OECD Guidelines for Multinational Enterprises, Fundamental ILO Conventions, Caux Principles for Business, Global Reporting Initiative Marketplace (including distribution, ethical marketing, pricing, billing, consumer’s privacy, product disclosure, product quality and safety, etc.) Marketplace issues, as they relate to corporate social responsibility, extend across a wide range of business activities that define a company's relationship with its customers. These activities may be grouped into six categories: (1) product manufacturing and integrity; (2) disclosure, labeling and packaging; (3) marketing and advertising; (4) selling practices; (5) pricing; and (6) distribution. In each of these areas, companies are retooling their business strategies to address new issues such as privacy and technology, marketing to children, heightened expectations for product safety and environmental impact, increased scrutiny by consumers and non-governmental organizations, and the steady globalization of the consumer movement. For further information, please visit: BSR In a broader sense, CSR also includes: Enterprise and economic development - This broad concept includes: competitiveness, development of local SMEs, entrepreneurship, community economic development, micro finance in emerging economies etc.) The drive of entrepreneurs in developing countries can provide the catalyst to lift an economy onto an upward growth spiral. In many cases, however, the lack of an enabling business framework and a scarcity of support structures for new businesses can work to undermine and defeat entrepreneurial endeavor. Increasingly, multinational companies (MNCs), with their wealth of financial, technical and managerial expertise, are being called upon to provide a focal point of support for local businesses. At the same time, MNCs can work to help governments understand the ways in which an enabling business framework can be developed to fuel domestic entrepreneurial efforts. Business involvement in community economic development (CED) is the application of a company's core business functions, as well as foundation and contribution dollars, to business endeavors in low-income and underserved communities for the mutual economic benefit of community and company. For further information, please visit: CSR Forum, CSR Europe Health promotion - The workplace is now recognized as an important setting for health promotion in industrialized countries, and interest is growing in the wider role that business can play as a partner in health development. Private sector business plays a dominant role as the driver of current global economic development, and globalization is bringing new social and

economic challenges. For those concerned with promoting well-being, it is essential that policies and programs are adjusted to address this new reality and that the business community is, as far as possible, engaged as a partner in the promotion of well-being. WHO Director General to the 51st World Health Assembly in 1998, Gro Harlem Brundtland indicated a significant shift in WHO policy towards engaging the private sector when she said: "We must reach out to the private sector... the private sector has an important role to play both in technology development and the provision of services. We need open and constructive relations with the private sector and industry, knowing where our roles differ and where they may complement each other. I invite industry to join in a dialogue on the key issues facing us". For further information, please visit: CSR Forum Education and Leadership Development - As educations is one of the key elements of sustainable development and pro poor growth, businesses, working together with public sector and civil society, can make an important contribution to providing an access to quality education for all. Companies can also make more critical impact on the development process by raising standards in corporate education and leadership development, and bringing best practices to their partners in developing and transitional economies. For further information, please visit: CSR Forum Human Disaster Relief - Companies, in cooperation with public sector, civil society, and international organizations, have played an important role in supporting humanitarian relief operations. Due to the rising cost, threat and complexity of the consequences of major disasters on society, the key challenge is to go beyond “proactive response” and to focus on prevention where CSR framework can help the key players to utilize more development oriented approach. For further information, please visit: CSR Forum

CSR Main Components - Case Studies ¾ ¾ ¾ ¾ ¾ ¾ ¾

Toyota’s CSR Practices Phillips-Van Heusen The London Benchmarking Group Delphi Automotive Nike Siemens – Contributing to a Better World Merck

Toyota’s CSR Practices Toyota's environmental policy and guidelines for the promotion of its global environmental conservation activities are outlined in its 'Earth Charter' which was introduced in 1992. Toyota's concern for the environment ranges from the effects of vehicle exhaust emissions, to the environmental impact of its manufacturing processes. The company's environmental commitment is focused on the development of technology which makes its products and processes cleaner and more efficient and which will provide Toyota with a competitive edge. Toyota aims to become a socially respected business in the eyes of the international business community, and each affiliate undertakes its own corporate giving based on local needs. The most important themes for Toyota's involvement in the community are education and the environment. Some of the activities Toyota supports are:

• • • • •

Toyota Teach, an educational programme established in South Africa and promoted through the Toyota South Africa Foundation. An educational and international student exchange programme in Vietnam. Student scholarships in Kenya which are awarded by the Toyota Kenya Foundation. The Toyota Volunteer Centre in Japan. The Automotive Training Programme which was formed in partnership with the LA Urban League in response to the 1992 civil unrest in Los Angeles.

Source: CSR Forum

Phillips-Van Heusen Phillips-Van Heusen Corporation efforts to constantly reaffirm PVH's century old legacy of exemplary corporate citizenship is seen in the company's policies towards diversity, sexual harassment, bigotry, equal employment opportunities and, importantly, workers rights. The Phillips-Van Heusen Corporation Foundation serves as the center for the Corporation's charitable activities. PVH encourages associates to reach out and volunteer in the communities in which they live and work. The Corporation's support spans both national organizations as well as health, human rights, educational, business and cultural institutions located in the communities where the major facilities of PVH are located both in the U.S. and off-shore. In 2001 alone, PVH associates assisted local and national community service organizations such as the United Way, Ronald McDonald House, Habitat for Humanity, Red Cross and Safe Horizon House. Through our foreign operations divisions, PVH has also contributed to schools, orphanages and families in Mexico, Honduras and the Far East. Phillips-Van Heusen Corporations' record as a fair and honorable employer spans its over 125-year history. Its commitment to the well being of all its associates can be seen in a number of ways: • • • •

PVH is a member of the Fair Labor Association. PVH is a strong supporter of major, reputable non-profit organizations dedicated to address issues of ethical business and human rights- such as Business for Social Responsibility and Human Rights Watch. PVH was one of the first corporations in the industry to create a Human Rights Program Department to assess and monitor the conditions of factories worldwide. PVH is also committed to developing human potential by supporting education in many forms - Project NEO is one such example. Here, PVH has partnered with a non-profit, international humanitarian organization to improve educational opportunities for more than 5,000 children in seven public community schools in a semi-rural municipality in Guatemala.

In 1991, PVH created a Code of Conduct that describes our requirements for all suppliers, contractors, and business partners. This code of conduct, "A Shared Commitment," demonstrates our continued desire to be an agent of change throughout the global community and to partner with individuals and companies that share our values and concerns. Among those values and concerns is a firm understanding that a diverse workforce is important to our associates and to our business. At PVH, one of the most important guiding principles is our commitment to respect for the individual. We also believe that diverse workforce is better able to respond to our consumer's needs and to the competitive demands of the global marketplace in which we do business. PVH has a growing international presence, and we strive to maintain a global perspective and an appreciation of world cultures. Source: CSR Forum

Community involvement - The London Benchmarking Group “The London Benchmarking Group was formed in September 1994. It comprises senior community affairs managers from leading UK headquartered companies. It was established to meet the need for accurate and comparable information about how different companies define, fund and manage their community involvement activities. The LBG produced the London Benchmarking Group Model in 1997 which was then tested by a group of 18 companies across different industry sectors. The model provides a basis to decide what is, and what is not, corporate community investment. It is devised around three main motives for corporate community investment (charitable gifts, community investment and commercial initiatives in the community) and distinguishes between "input" costs and "output" benefits. The model is increasingly being adopted in the UK and internationally as a benchmarkable standard. Practical guidance on using it is available.” Source: The Corporate Citizenship Company

Community involvement - Delphi Automotive ”Delphi Automotive participates in a unique business/public sector/NGO partnership designed to increase home building and home ownership opportunities for its employees and low income residents of communities in Mexico. In 1997, Delphi's Chasis Division, the world's largest manufacturer of auto parts, initiated a partnership program with the Mexican government to provide subsidized housing for Delphi employees in Mexico. Through the Delphi Border Housing Project, the company provides workers with downpayment assistance to purchase governmentsponsored low-cost housing. To date, the company has helped over 2,200 employees find housing, and plans to build 7,000 homes in the cities of Reynosa, Matamoros, Monterey, Nuevo Laredo, Chihuahua, and Ciudad Juarez by the end of 1999. Reaching beyond Delphi employees to benefit people in the broader community, Delphi has formed a strategic partnership with Habitat for Humanity to provide affordable housing for non-employees in the Mexican communities in which they work. Through the initiative, Delphi has committed to funding the development of 50 homes and covering Habitat's local administration expenses for two years.” Source: Business for Social Responsibility (original file unavailable) Nike „...To lead in corporate citizenship through proactive programs that reflect caring for the world family of Nike, our teammates, our customers and those who provide services to Nike...” This is a mission statement of Nike. Siemens – Contributing to a Better World “Of course, as a commercial company, Siemens wants to sell products and solutions, to earn money – and that’s the case all over the world. With our products we can make an important contribution in developing countries by setting up an efficient power supply, by setting up communication and transport infrastructure. These are essential for successful development. Our corporate principles tell us to use our knowledge and solutions to help make a better world” Merck “Merck believes our responsibilities as a corporation extend beyond our primary business of discovering, developing and marketing important new medicines. We believe we have a commitment, through our corporate philanthropy initiatives, to help the non-profit sector meet important societal needs. In doing so, we focus on areas where Merck has an interest and

expertise: advancing scientific knowledge and education, and improving health care. In addition, we address other important issues, such as promotion of the arts and protection of the environment.” For more information please see: Merck

The Triple Bottom Line In a situation where there is growing pressure on companies to deliver both shareholder value and social and environmental value, managers focus their attention on maximizing valued-added across the triple bottom line. The triple bottom line focuses on three dimensions of sustainability: economic, environmental, and social.

Economic bottom line: Although main emphasis is on financial performance, this often refers not only to profit but to the philosophies behind a company's strategy or behavior, the sustainability of its businesses and its 'human capital”.

Environmental bottom line The impact of its products or operations on the environment, plus the nature of its emissions and waste and how it is dealing with them.

Social bottom line How it approaches issues such as ethnic and gender diversity, working hours and wages, staff security and its contribution to community services or facilities With help from the consulting industry who provide triple bottom line advisory services to businesses, more and more companies are reporting on their triple bottom line performance.

Although a number of initiatives have addressed the need for global conduct standards, including triple bottom line reporting such as the Global Reporting Initiative, no international standards have as yet emerged.

Triple Bottom Line - Readings Triple Bottom Line Reporting-FTSE Trend Eco Steps Triple Bottom Line (TBL) Advisory Service Global Conduct Standards Effects of “Best Practices” of Environmental Management on Cost Advantage: The role of Complementary Assets

Triple Bottom Line Reporting – FTSE Trend Around 50% of FTSE- 100 companies publish formal environmental reports and this figure is expected to rise to at least 70% by the end of 2001.The number of companies publishing specific reports on social policies rose from three in 1996 to 28 in 1999. A recent survey by CSR Europe, Communicating Corporate Social Responsibility, targeting 45 global and large companies operating in -the EU showed that over 90% of these reported on their mission, vision and values, workplace climate, community involvement, local economic development, marketplace and environmental impact. Source: Landcare Research, Triple Bottom Line Advisory Service

The Triple Bottom Line Approach In essence, an organisation: • • • •

Establishes its own values in relation to social, environmental, and economic issues. Determines the performance issues of importance to its stakeholders (staff, customers, shareholders, communities, suppliers, insurers, etc). Integrates the above to establish a set of key performance areas, indicators, and targets. Measures and openly reports performance, with external verification to increase trust.

The Decision to Adopt the Triple Bottom Line Approach Organisations choose to report for many different reasons. If used effectively, the TBL approach and reporting have the potential to: • • • • • •

Build stakeholder relationships based on shared values, trust, and integrity Manage risks by identifying areas of concern to stakeholders and being able to deal with them proactively rather than reactively Enhance internal management by identifying areas of improvement Increase the organisation's contributions to global sustainable development Reduce operating and compliance costs through improving systems Benchmark the organisation against others reporting in its sector

Increase market opportunities through stimulating innovation and attracting new clients. Source: Landcare Research, Triple Bottom Line Advisory Service Eco Steps Triple Bottom Line (TBL) Advisory Service What does it address? The notion of reporting against the three components (or ‘bottom lines’) of economic, environmental, and social performance is directly tied to the concept and goal of sustainable development. Triple bottom line reporting, if properly implemented, will provide information to enable others to assess how sustainable an organisation’s or a community’s operations are. The perspective taken is that for an organisation (or a community) to be sustainable (a long run perspective) it must be financially secure (as evidenced through such measures as profitability); it

must minimise (or ideally eliminate) its negative environmental impacts; and, it must act in conformity with societal expectations. These three factors are obviously highly inter-related.

How do you ‘do’ it? Integrated TBL accounting and reporting implies that the three measures of value added are incorporated into a single, all-encompassing measurement. So, for example, economic value added measures would be adjusted for the environmental and social dimensions. At the macro level, integration efforts are already in existence - the Index of Sustainable Economic Welfare (ISEW) adjusts normal measures of welfare by subtracting costs such as those associated with unemployment, commuting, automobile accidents, and all forms of environmental pollution. The near-term challenge, is to identify a limited set of key performance indicators for each bottom line, with a constant eye on the degree to which - and how - progress can be measured and integrated into an overall set of accounts. Source: Eco STEPS: Sustainability Training Education Practices & Strategies Global Conduct Standards The on-going debate is mostly on 1) the type of information that should be disclosed; 2) the reporting format that should be used consistently by all; and 3) independent third parties that will verify the information. Global Reporting Initiative (GRI) - issued in 1999, but development is ongoing) The GRI is an international reporting standard for voluntary use by organisations reporting on the economic, environmental and social dimensions of their activities, products and services. Using input from reporters and report users, the GRI has sought to develop a list of specific indicators for reporting on social, environmental and economic performance. The GRI pursues this mission through a multi-stakeholder process of open dialogue and collaboration in the design and implementation of widely applicable sustainability reporting guidelines. Effects of “Best Practices” of Environmental Management on Cost Advantage: The role of Complementary Assets “Research on the effects on firm performance of best practices of environmental management, which are supposed to enable firms to simultaneously protect the environment and reduce costs, has so far ignored the roles of existing firm resources and capabilities. Drawing on the resourcebased view of the firm, this study analyzes whether complementary assets are required to gain cost advantage from implementing best practices. Results based on survey data from 88 chemical companies indicate that capabilities for process innovation and implementation are complementary assets that moderate the relationship between best practices and cost advantage, a significant factor in determining firm performance.” Source: P.Christman, Academy of Management Journal, 2000 Vol. 43, no. 4, 663-680

Triple Bottom Line - Quotations The Global Reporting Initiative

"I believe that … voluntary public reporting promotes greater transparency for … companies, and improves community confidence in our sector as a whole. It follows, therefore, that institutions in our society that rely on community confidence - such as government departments, media outlets, and community based organisations - might well consider embracing the highest standards of public reporting on matters such as environment, safety, and community relations." -- Hugh Morgan, Chief Executive Officer, WMC Ltd. "Through GRI, consumers may have a potent new weapon to move companies toward improved social responsibility, enabling us to tell the good guys from the not-so-good ones when we shop, invest, and apply for jobs… And GRI may be the brightest ray of hope we have to cure many of our planet’s gravest ills." -- Co-op America Quarterly, Spring 2001 "On balance, the GRI guidelines are a huge achievement. So huge that few firms, big or small, can ignore them. The guidelines, thanks to GRI’s massive commitment to inclusiveness, have fast become the leading way for companies to respond to the growing global demand for corporate accountability." -- Tomorrow, November/December 2000 "The transparency of GRI has helped us immeasurably at Ford… It was absolutely necessary and right for us to adopt GRI. We’re glad we did." -- John Rintamaki, Group Vice President and Chief of Staff, Ford Motor Company, November 2000 "The Global Reporting Initiative is an admirable response to one of the primary challenges of our times: making global markets more stable and inclusive." -- Kofi Annan, Secretary General of the United Nations, November 2000 "I believe the GRI can make a major contribution in the growing efforts to curb corruption." -- Frank Vogl, Vice Chairman, Transparency International, November 2000 "The GRI holds out an additional, possibly unique, opportunity for NGOs [non-governmental organisations]. It is not only a potentially useful forum where NGOs can deliver their campaign message directly, regularly, and in undiluted form to industry and government actors. Equally importantly, perhaps, it provides a potential stimulus and framework—currently lacking—for helping NGOs to dialogue on and develop shared positions around their shared and overlapping environmental sustainability and social justice concerns." -- Paul Hohnen, Special Adviser, Greenpeace International, November 2000 Source: Global Reporting Initiative, www.globalreporting.org

Increased Importance of CSR CSR is becoming one of the most challenging issues that both private and public sector, civil society and opinion leaders, and other practitioners are faced with. The main reason for the increased importance of CSR can be classified into six broad and overlapping categories: Globalization: New CSR Issues ™ ™

More complex organizations which operate in diverse cultures and jurisdictions; Different CSR standards among countries;

™ Diverse cultures, norms and values, languages, laws and regulations, quality of life, and readiness to recognize the existence of these issues and willingness to confront them; ™ Need to achieve consistent business conduct standards; ™ How to deal with local CSR standards (including health, safety, and environment), which are lower than ones back home? ™ Importance of local champions among community leaders, beyond company level initiatives.

New Technology Impact of information technology: o Companies are first to be exposed to these issues o Questions of security - data protection and customer privacy o Emerging industries, such as “dot.coms”, have different base of competitiveness – once mature, they will pay more attention to business ethics and corporate social responsibilities; ™ New technology, such as telecommuting reduce face-to-face communication between employees and managers; ™ Technological changes: new CSR dilemmas, including engineering and privacy on the Internet: o Real-time exchange and conversation on the Internet is available instantly and globally, thus allowing citizens to express their opinions, make suggestions, and post their complaints online. The Internet empowers customers to shape corporate reputation. The Internet provides a very efficient way to check the company history, its economic, social, and environmental attitudes.

™

Complexity and Risks The complexity arises because of discontinuities in technology, demography, revolutions, societal and cultural trends, and from the fact that the next rules of competition have yet to be written. Furthermore, unpredictable and turbulent changes can come to any industry (even in those where the rules of competition are clearly defined today) thus exposing countries and companies to unforeseen competitive pressure. In addition to competitive pressure, increased importance of societal expectations being placed on businesses put the issue of competitiveness on an unprecedented scale and level of complexity. This includes such issues as ™ Increased merger and acquisition ™ Increasing complexity, likelihood and significance of risk from wrongdoing ™ More complex organizations and risks of “cultural clash” due to increased complexity of operations: even a single act of wrongdoing can have far reaching consequences ™ Rapidly changing world: leads to increased uncertainties and need for continuous “keeping up” ™ New laws and regulations: increase complexity and the potential for non-compliance ™ Increasing influences of stakeholders, particularly NGOs ™ Increased vulnerability of big companies due to: o “Life in CNN world” o responsible for their partners in other countries o big scandals lead to more government interventions including regulations ™ Corporate downsizing and decentralization often leads to: o Loss of valuable experience o Loss of control mechanisms Greater Likelihood of Discovery due to: ™

New technology: high speed of information access and dissemination

™ A more powerful and aggressive media ™ 24 hours global news services ™ Increased scrutiny by stakeholders, such as governments, NGOs, the public and customers

Greater Cost of Misconduct due to: ™ Increasing fines and penalties – still primarily driven by “new legislation and regulations” ™ Increasing reputation damages in an era of expanding customer choice ™ Growing interests of the investment community, in “softer issues” such as CSR and impact on the environment.

Increased Importance of CSR - Case Studies ¾ ¾ ¾ ¾ ¾ ¾ ¾

Global Communication Revolution Communication Skills Global News - Nike Global News – Pfizer Complexity and Risks - Shell Greater Cost of Misconduct Greater Cost of Misconduct: Increasing Fines and Penalties

Global Communication Revolution “Indeed, the revolution in communication technologies has created all sorts of new ethical dilemmas. Because it is mainly businesses that develop and spread new technologies, business also tend to face the first questions about how to use them. So companies stumble into such questions as data protection and consumer privacy. They know more than ever before about their customers’ tastes, but few have a clear view on what use of knowledge is unethical. There might still be two good reasons for companies to worry about their ethical reputation. One is anticipation: bad behavior, once it stirs up a public fuss, may provoke legislation that companies will find more irksome than self-restraint. The other, more crucial, is trust. A company that is not trusted by employees, partners and consumers will suffer. In an electronic world, where businesses are geographically far from their customers, a reputation for trust may become even more important.” Source: The Economist “Doing well by doing good”, August 22, 2000 Communication Skills “ Awareness of corporate community involvement is low, and has remained low throughout the past decade despite the growing focus on social and environmental activities by both Large companies and SMEs. This goes a long way to explaining why nearly three-quarters of the public believe that industry and commerce do not pay enough attention to their social wider communities. It is up to companies to find ways to communicate effectively with their costumers, employees and their local and wider communities. The overall message is clear-companie are now expected to be able to meet the responsibilities of the society in which they live and operate, whilst competing effectively. The rewards are high because if the public knows the values that a company stands for, and sees how these beliefs are actively demonstrated, they are more likely to have a positive image of that company” Source: Corporate Social Responsibility Update, Autumn 2000

Global News - Nike The momentum for global social change in this era of instant communications is unprecedented. Consider Nike. In March 1998, the company announced that its financial performance had deteriorated substantially over the past year. One of the main reasons addressed by company management for Nike’s decline was resistance of consumers that the company mistreats its factory workers. Global News - Pfizer “Oxfam and South African groups have called for global action against Pfizer on the grounds of its pricing policies. Fresh from their positive welcome for recent actions by GlaxoSmithKline, Oxfam accused Pfizer of “moral bankruptcy” for pricing drugs out of the reach of millions of poor people.” Source: CSR News, Pfizer targeted on drugs pricing, July 25, 2001 Complexity and Risks - Shell “In 1995 Shell suffered two blows to its reputation: one from its attempted disposal of the Brent Spar oil rig in the North See, and the other over the company’s failure to oppose the Nigerian government’s execution of a human rights activist in a part of Nigeria where the company had extensive operations. Since then Shell has rewritten its business principles, created an elaborate mechanism to implement them, and worked harder to improve its relations with NGOs. Shell’s efforts had no clear legal or financial pressure behind them.” Source: The Economist “Doing well by doing good”, August 22, 2000

Greater Cost of Misconduct “Fear of embarrassment at the hands of NGOs and the media has given business ethics bigger push. Companies have learned that hard way that they live in a CNN world, in which bad behavior in one country can be seized on by local campaigners and beamed on the evening news to consumer at home. As NGOs vie with each other for publicity and membership, big companies are especially vulnerable to hostile campaigns.” Source: The Economist “Doing well by doing good”, August 22, 2000 Greater Cost of Misconduct: Increasing Fines and Penalties “In the USA companies have a special incentive to pursue virtue: the desire to avoid legal penalties. The first attempts to build ethical principles into the corporate bureaucracy began in the defense industry in mid 80’, a time when the business was awash with kickbacks and $500 screwdrivers. The first corporate-ethics office was created in 1985 by General Dynamics, which was beginning investigated by the government for pricing scams. Under pressure from the Defense Department, a group of 60 companies then launched an initiative to set up guidelines and compliance programs. In 1991, federal sentencing rules extended the incentive to other industries: judges were empowered to reduce fines in cases involving companies that had rules in place to promote ethical behavior, and to increase them for those that did not.” Source: The Economist “Doing well by doing good”, August 22, 2000

Increased Importance of CSR - Data CSR Impacts An opinion leader survey on corporate social responsibility in France, Germany, and UK, conducted by Burson-Marsteller shows that: • • •

66% of opinion leaders agree strongly that corporate citizenship will be important • in the future. 64% of opinion leaders agree strongly that the health of a company’s reputation • will affect their own decisions as legislators, regulators, journalists, NGO leaders, etc. • 42% of opinion leaders agree strongly that corporate responsibility will affect share prices in the future.

The survey also asked if they agree that corporate responsibility will influence the decisions they make in the future.

Source: Burson-Marsteller, The Responsible Century?

Benefits of CSR There are many reasons why it pays for companies, both big business and SMEs (small and medium enterprises) to be socially responsible and be conscious about the interest of the key stakeholders. “Companies are now recognizing that dealing with environment and social issues can provide business benefits when reputational risk is high and sustainable competitiveness and development becomes a key strategy.” Susan Ariel Aaronson, Senior Fellow, National Policy Association.

Examples include: 1. Getting license to operate– from key stakeholders not just shareholders In a situation where about half of the world’s 500 biggest economies are corporations, often answerable only to themselves and effectively stateless, then citizens have to rely on corporations’ own internal values and policies to keep them socially responsible. The critical challenge is to make sure that those values are focused on what is best for the key stakeholders, not just shareholders. The increased power of companies and thus, business leaders leads to ever growing expectations from society in large, that company needs “license” from society to operate. With the increased power of companies and the spread of privatization, the private sector is gaining a much bigger role and responsibility for economic development. In this context, the bigger the private sector is, the higher societal expectations and responsibility are. This responsibility is not limited to economic issues but must also include social and environmental progress. The key challenge, particularly for companies in transitional and developing countries is the change in the survival mentality and the culture that emphasizes short-term gains at the expense of moral and societal values. Providing products and services ethically and in a socially responsible manner requires a different mind-set. A mind set that puts emphasis on “doing things because they are right and not only because they maximize shareholder value”. 2.

Sustainable Competitiveness

The impact of CSR elements: A. B. C. D. E.

on sustainable competitiveness can be unbundled in five overlapping Enhancing reputation and brands More efficient operations Improved financial performance Increased sales and consumer loyalty Increased ability to attract and retain quality employees

To remain competitive, firms, big and small, realize that they must take CSR into consideration, thereby meeting the expectations of the investors, employees, consumers, business partners, and communities. This is particularly challenging for firms in transitional and developing countries. With a broader introduction of CSR and business ethics concepts and its relevance for staying competitive in the global knowledge based economy, there is a real danger that transitional economies and developing countries, unless they address these issues in a timely and systematic way, could face the risk of social and political unrest thus jeopardizing the development of a market economy and even democracy. CSR must be conceived as an ongoing long-term undertaking; an integral part of corporate competitiveness. The real challenge is how to make CSR a competitive asset. The Turnbull Report, which forms part of the UK’s corporate governance guidelines, advises companies to treat reputation in the same way as all other assets. Companies cannot sustain their competitive advantage unless they care for their customers, their products, the environment, and the communities in which they operate. Many companies are adopting CSR practices out of a hardheaded appreciation of their corporate self-interest. It should not be confused with short-term crisis management. For more detail discussion, please see Module 4: Building Sustainable Competitiveness through CSR A. Enhancing Reputations and Brands The business environment is more and more sensitive to firm’s social, ethical, and environmental performances due to globalization, the communication revolution, knowledge based economy, and mobility of customers and suppliers. Branding and customers loyalty become more critical in

globalized economies, putting additional pressure on careful selection of strategic partners and participants in the global supply and distributing channels. With e-economy, brand loyalty and reputation become even more important. This is probably the single most important and advantageous way for the manufacturers to strengthen their position towards the e-based retails. This makes reputation increasingly central to all the businesses and an important competitive asset whether expressed in the brand value of a large multinational or a local shop’s reputation for customer service. Stakeholder reputation can be more valuable than brand, because it is more difficult and time-consuming to develop, thus, more sustainable – competitors cannot easily mimic this. B. More Efficient Operations

Utilization of CSR framework in corporate business strategy can result in high efficiency in operations, for instance, improved efficiency in the use of energy and natural resources; reduced waste such as reducing emissions of gases; and selling recycling materials. Business operation also benefits from better human resources. In the human resources arena, work-life programs that result in reduced absenteeism and increased retention of employees often save companies money through increased productivity and by a reduction in hiring and training costs. For example, companies that improve working conditions and labor practices among their offshore suppliers often experience a decrease in defective or unsalable merchandise. A study of 15 large employers conducted by the Medstat Group and the American Productivity and Quality Center found that health benefit programs can increase productivity and decrease company costs related to absenteeism, turnover, disability and health-care claims by 30 percent. C. Improved Financial Performance Business and investment communities have long debated whether there is a positive correlation between socially responsible business practices and better financial performance. Although it is impossible to give a final answer to this dilemma, various surveys and several academic studies have proved the positive correlation.

D. Increased Sales and Customer Loyalty A number of surveys and studies have concluded a larger and growing market for the products and services produced by socially responsible companies. While businesses must first satisfy customers’ key buying criteria – such as price, quality, appearance, taste, availability, safety and convenience – studies also show a growing desire to buy based on other values-based criteria, such as “sweatshop-free” and child-labor-free clothing, smaller environmental impact, and absence of genetically-modified materials or ingredients. CSR concerned consumers will probably do better to buy products produced by reputational companies with manufacturing facilities in developing countries – which, in order to protect their reputation, have started to use independent monitors in these countries – than to purchase a no-name brand. E. Increased Ability to Attract and Retain Quality Employees Greater job mobility means that attracting and retaining a committed and skilled workforce is vital to business success – and there is powerful evidence that a strong track record on social responsibility can help in this. 3. Creating New Business Opportunities Open and productive two-way communication with the stakeholders not only improves the company’s reputation but also opens up new business opportunities. Close cooperation with key stakeholders and communities and responding to CSR constraints by revising business practices and strategies and accepting triple bottom line concepts also provide opportunities through innovation, creative thinking, better relations with key stakeholders, and introduction of new products and markets. Creative thinking is highly stimulated by addressing issues of CSR and taking into consideration the ecological and social costs. Facing and solving CSR challenges can put additional creative pressure on businesses. When competitors adopt less costly but not socially responsible and ethically sound solutions, your company should take advantage of the new challenge and try to create and explore innovative, creative alternatives and seek new solutions. Creativity is one of the vital ingredients for building sustainable competitive advantages. Productive communication with outside stakeholders will further facilitate the development of creative and innovative strengths Experiences gained through addressing CSR challenges also provide opportunities for companies, through consulting services, to sell their know-how to other companies. 4. Attracting and Retaining Quality Investors and Business partners Sound CSR practices help companies attract and retain quality investors and business partners. The benefits can be classified in four broader categories: • • • •

• • • •

Increased shareholder value Lower cost of capital Access to Socially Responsible Investment Fund Reducing Risks by Bringing Best Practices to Business Partners

Demand for investment capital is increasing and companies like to raise capital at a lower cost possible. Investors are usually ready to pay more for companies with sound business practices. At the same time, investors are requiring new “conditions” for minimizing their risks, such as good corporate governance, business ethics and corporate social responsibility policies and practices. Many countries were able to attract foreign investment and other forms of partnership by offering low cost labor. However, there are cases when this cost saving was achieved through hiring defenseless children, impoverished adults, and other powerless hourly workers. Thus cost saving

became a high risk, damage on reputation, and thus eventually a high cost. “Reputational risk” that arises from irresponsible social and environmental business practices – for instance, environmental damages, violation of human rights, and child labor – is an additional risk, and doing business with socially and environmentally irresponsible partner brings reputational risk to the company. Therefore, world-class companies started helping their suppliers to adapt similar CSR practices thus reducing reputational and other forms of risk. The UK Ethical Trading Initiative for example aims to ensure that goods are out sourced from supplier in the countries, which respect human rights and provide safe working conditions. 5. Cooperation with Local Communities Increasingly dynamic marketplaces mean that company’s success depends crucially on responding to the needs of the communities or cultures in which it operates. Cooperation with local communities help in tailoring products and services to indigenous markets; make easier to use local expertise, distribution channels, production facilities thus reducing the cost of new investments, and increased loyalty of employees. 6. Avoiding Crisis Due to CSR Misconduct Ignoring CSR can be very costly because the company might lose reputation, market-share, and stock price. Reputational risk should be considered as a set of threats that affect the long-term trust placed in the organization by its stakeholders. This included risks not only to products, but goes beyond to company itself, and whole industry. An illustration of reputational damages for the whole industry is the loss of trust by consumers of British beef due to the way of handling “mad cow” disease. Reputational risk is largely about perception (different from traditional risks). Perception can differ for different stakeholders. For example, environmental risk affects companies through three channels: a) in the market place: loss of customers, b) in courts: threat to company balance sheets, and c) in the regulation area: new regulations can increase operating costs. Some managers usually understand environmental risk as a risk to the company that arises from social concerns about the environment. For government regulators and environmental activist, environmental risk is the risk of damage to ecosystems (risk to the environment). Similarly to other risks, reputation is asymmetric (in perception) and has no short-term upside. Superior risk management can be a source of long-term competitive advantage. Best-known brands and big companies are the first target for CSR misconduct and the consequences could be huge in terms of lost market share or market capitalization. A damaged reputation might require years to rebuild and cost a large sum of money. A recent Business and Society study found that social irresponsibility can result in a negative effect on a company’s profitability – especially when it makes the front page of the newspapers. A 1997 analysis in Business & Society measured the stock market’s reaction to 27 events of socially irresponsible or illegal behaviors, and found that companies involved in such occurrences suffered significant losses in shareholder wealth. The analysis measured the stock market’s reaction to incidences of social irresponsibility, and found that there is indeed a direct correlation, although the data cannot tell us if the losses are long-term or short-term. Source: Business & Society, (Vol. 36, No. 3, Sept. 1997) 7.Government Support Many governments give financial incentives for sound CSR initiatives, including environmentally friendly innovations. Companies that demonstrate they are engaging in practices that satisfy and go beyond regulatory compliance requirements are being given less scrutiny and freer reign by both national and local government entities.

8.Building Political Capital Addressing CSR issues provides a chance to build political capital: to improve the relationship with government and political leaders and officials, to influence regulations, to reshape public institutions on which the company depends, and to improve public image. In order to fully understand the benefits of incorporating CSR guidelines in corporate and national development strategy, it is critical to understand the difference between CSR and narrow philanthropic motives and social services that were traditionally provided by state-owned companies. Another important issue that requires particular attention is the complexity of measuring the benefit and impact of CSR, particularly when the triple bottom line concept is to be implemented.

Business Benefits - Case Studies ¾

Business Benefits ¾ Ethical Companies Do Better Financially ¾ Loyalty of Employees ¾ Customers’ Approval of Ethical Policy – The Co-operative Bank ¾ Improved Efficiency - Energy ¾ Improved Efficiency – Reduced Waste ¾ New Skills and Knowledge ¾ Building a Reputation in the Community – Asda ¾ Trading on Reputation – B&Q plc ¾ Company’s Brand Value and Reputation ¾ Consumers are Ready to Pay Premium for Environmentally and Socially Responsible Products ¾ Market Behavior on CSR ¾ Consumer Boycotts ¾ Building Political Capital - Case in the US ¾ Creative Thinking – New Business Products ¾ Reputational Risk – Shell ¾ Big scandals lead to more government interventions ¾ Making Eco-Efficiency Pay – Unilever ¾ Consulting Services - DuPont ¾ Co-operative Bank-benefits of CSR ¾ Benefits of Good Community Relations – ARCO ¾ Companies Discover a Competitive Advantage in Fighting AIDS

Business Benefits The recent study by Business Impact Task Force in the UK reports that: The cost or benefit of a company’s goods and services, how it treats its own • employees and the environment, its record in respecting human rights, its investment in local communities – and even its record in prompt payment of bills, can all be significant factors affecting its reputation;

• •

A company’s approach to managing supplier and customer relationships, workforce diversity and work/life balance as well as its efficient management of environmental issues are central to competitiveness; The wide range of risks to which a business is exposed – whether financial, regulatory, environmental or from consumer attitudes – demand a complex process of managing relationships and establishing values. In December 2000 recommendations 4 on corporate governance came into force, requiring companies to include environmental, reputation and business probity issues in their business risk management.

Source: "Winning with Integrity" report, MORI, Co-operative Bank

Ethical Companies Do Better Financially A 1997 DePaul University study found that companies with a defined corporate commitment to ethical principles do better financially (based on annual sale/revenue) than companies that do not. A recent longitudinal Harvard University study found that stakeholder-balanced companies showed four times the growth rate and eight times the employment growth when compared to companies that are shareholder-only focused. A study by the University of Southwestern Louisiana, “The effect of published reports of unethical conduct on stock prices” showed that publicity about unethical corporate behavior lowers stock prices for a minimum of six months. Source: Business for Social Responsibility Loyalty of Employees 73% of surveyed citizen (25,000 citizens across 23 countries on six continents) agreed that they would be more loyal to an employer that supports the local community. Source: "Winning with Integrity" report, MORI, Co-operative Bank

Customers’ Approval of Ethical Policy – The Co-operative Bank The Co-operative bank has found that more than 90% of its customers approve of its ethical policy and that its market share has increased with the promotion of this policy through cinema, poster and direct mail marketing. Source: "Winning with Integrity" report, MORI,Co-operative Bank

Improved Efficiency - Energy Improved efficiency in the use of energy and natural resources has been shown consistently by government programs to save 10% of waste at no cost as well as improve impact on the environment. This could potentially save UK industry £2.6 billion a year as well as reduce the use of natural resources. Source: "Winning with Integrity" report, MORI,Co-operative Bank

Improved Efficiency – Reduced Waste

Efficient operations can lead to costs savings and better management of waste. According to Survey-Mastering Management, Financial Times, October 30, 2000: “Waster products are often inputs for which a company has paid and is not using; reducing them can save costs, at least partially offsetting the costs of waste management. In many cases, materials savings have more than offset the cost of waste reduction and profits have increased. Dow Chemical’s US operations in Louisiana averaged a return of 204% on investments in energy saving projects between 1981 and 1993. Other investments in waste management and energy efficiency have yielded returns in excess of 100%, far above the usual returns on investments….” Selling recycling materials “If waste products cannot be reduced, they can be sold. For example, sulphur dioxide is removed from exhaust gases by dissolving it in water, producing sulphuric acid, which can be sold, recovering some of the cleaning costs. Both DuPont and brewer, Anheauser-Busch, have developed markets for their waste. DuPont sells acid salts once discharged as waste and Anheuser-Busch sells brewery waste as fertilizer.” “Heat and power systems have been linked to harness waste. Conventional power stations discard huge amounts of heat at energy levels too low to generate power, but not quite enough to heat buildings. In combined heat and power systems, power stations sell waste heat to local buildings, significantly improving profitability, removing the need for heating plant in the buildings and increasing the overall efficiency of fuel.” “A new generation of industrial parks is building on this principle: Dow’s ValuePark in the eastern part of Germany and the Kalundborg industrial ecology park in Denmark both try to match companies so that wastes from one become inputs to another. Dow is investing $1 billion dollars in ValuePark and expects a rate of return of 30 percent.” Source: Business for Social Responsibility New Skills and Knowledge

In their 1998/99 Social Impact Review in the UK, Natwest Group noted that 92% of the staff involved in their program of placing volunteers from business in art organizations said that involvement had provided access to valuable new skills or knowledge. Source: "Winning with Integrity" report, Nat West

Building a Reputation in the Community – Asda “…the company recognized that its customers’ expectations were changing. Not only did they want Asda to be socially responsible, they wanted to know that their local store had a human face and made a difference to the neighborhood. It is also an important point of differentiation in an increasingly competitive marketplace…” Business Benefits Asda’s reputation has grown, largely thanks to more than 150 articles in the national • and local media. • Staff morale has increased – and with it customer service. • Sales are up. • Partnerships with suppliers led to higher sales – the McVities Maths Stuff schools campaign, for example, increased product sales by 12%.

•

The success of the Big Sum encouraged Asda to launch the Big Eat food facts campaign for local school children.

Source: Society and Business: Developing Corporate Social Responsibility in the UK

Trading on Reputation – B&Q plc B&Q plc is the UK’s largest home improvement chain. In 1999, its profits reached £188m - a success built not only on products and pricing but responsibility and reputation. Business benefits • Continuous improvement in conditions has made supply chains more efficient. • Managing environmental and social issues through continuous improvement has supported their reputation when there are high profile concerns in these areas. • The company has won coverage on TV and in the national press as a positive example to others. • Child labor and deforestation are emotive issues – employees are proud to work for a company that tackles these issues head on. Acting voluntarily, ahead of any legislation, puts B&Q in a strong position and guards • against unforeseen costs. Source: Society and Business: Developing Corporate Social Responsibility in the UK Company’s Brand Value and Reputation Company’s value of brand…. In some companies, such as Coca-Cola, the value of the brand far surpasses the value of the company’s tangible assets. Interbrand, the New York-based brand valuation consultant service, had estimated the value of Coca-Cola brand to be more than 95 percent of all its corporate assets. Research carried out in 1998 by blending consultancy, Interbrand and Citibank found that total value of FTSE 100 company was 824 billion pounds, of which tangible assets was 240 billion pounds and good will was 584 billion pounds; this means that 71% of total value was good will versus tangible assets. Note that reputation is a large part of good will. Source: Fortune Magazine Reputation…. CEO Survey In a 1999 poll of 650 CEOs in the US, published in Chief Executive magazine, 96 percent said their company's reputation is "very important" to achieving strategic business objectives, and 63 percent said that reputation is more important than it was five years ago—but only 19 percent of those polled have a formal system to measure the value of their corporate reputation. Source: Chief Executive Magazine, April 1999, p.79 Consumers are Ready to Pay Premium for Environmentally and Socially Responsible Products

The MORI survey in the UK shows that 70% of respondents regard a company's commitment to social responsibility very important to them when buying a product or service. Around half say they would be willing to pay more for products that are environmentally and socially responsible. Source: MORI Survey. Market Behavior on CSR For example, Kleinwort Benson, the well-known London city firm, found that the share price portfolio of 32 companies, who practiced an inclusive approach to their business, increased by 90% between December 1992 and June 1996, while the FTSE All-Share index increased by 35%. A recent study of the 300 largest public companies in the US by ICF Kaiser found that companies which ‘greened’ their corporate practices could make shareholders up to 5% richer. A 10-year investment in America’s 10 most admired companies would have yielded nearly tripled the shareholder return of the S&P 500 stocks. There are ways investors might influence company behavior. The most obvious is through the cost of capital. A company that is out of favor with investors will have to pay more for capital, either by issuing more shares or by paying higher interest rates. A new survey by McKinsey & Company, focusing mostly on developed countries, confirms that institutional investors are prepared to pay a premium of more than 20% for shares of companies that demonstrate good corporate governance. A similar survey conducted by Russell Reynolds Associates, indicated that about 50% of the European investors and 61% of US investors have decided not to invest in a company, or have reduced their investment, because of poor governance practices (source: Russell Reynolds Associates, Corporate Governance in the New Economy – 2000 International Survey of Institutional Investors). The Social Investment Forum reports that, in the US in 1999, there was more than $2 trillion in assets under management in portfolios that use screens linked to ethics, the environment, and corporate social responsibility. This figure has grown from $639 billion in 1995, to $1.185 trillion in 1997, to $2.16 trillion in 1999. The 1999 portfolio amount accounts for nearly 13 percent of the $16.3 trillion in investment assets under professional management in the U.S. In 2001, the figure is around $3 trillion. Given these numbers, it is clear that companies addressing ethical, social, and environmental responsibilities have rapidly growing access to capital that might not otherwise have been available. Source: Business for Social Responsibility Consumer Boycotts MORI research conducted in 1998 among British adults found that 17% had boycotted a company’s product on ethical grounds, 19% had chosen the product/service because of companies ethical reputation and a further 28% had done both. Source: "Winning with Integrity" report Building Political Capital - Case in the US In the U.S., for example, federal and state agencies overseeing environmental and workplace regulations have formal programs that recognize and reward companies that have taken

proactive measures to reduce adverse environmental, health, and safety impacts. In many cases, such companies are subject to fewer inspections and paperwork, and maybe given preference or “fast-track” treatment when applying for operating permits, zoning variances or other forms of governmental permission. The U.S. Federal Sentencing Guidelines allow penalties and fines against corporations to be reduced or even eliminated if a company can show it has taken “good corporate citizenship” actions and has an effective ethics program in place. Source: Business for Social Responsibility Creative Thinking – New Business Products Financial Times reports that “[n]ew energy sources, new power sources for vehicles and an increasing emphasis on minimal environmental footprints will create new products and markets with no incumbents and opportunities for those who think quickly and differently. BP Amoco is placing bets on solar power sources, Ford and Daimler Benz are investing in fuel cells, while Toyota and Honda already have hybrid cars running on a combination of internal combustion engines and electric motors. These changes shake out markets and create opportunities in the supply chain.” Source: Survey-Mastering Management, Financial Times, October 30, 2000 Reputational Risk - Shell “Oil and chemical group Royal Dutch/Shell has defended itself against the conclusions of a report in Brazil regarding the contamination from one of its factories in Paulinia. In particular, the company disputes that the pollution which occurred represented any threat to the health of the residents. Shell admitted earlier this year that the plant had affected the soil and groundwater, with discharges of Aldrin, Dieldrin and Endrin prior to 1990. These chemicals are amongst the most toxic known, and are part of the group of substances collectively termed "the dirty dozen". The report, released by the Paulinia City Hall, suggested that 156 of the 181 residents examined have some degree of contamination from the chemicals, with 28 of the children suffering chronic contamination. Shell has stated, however, that the findings are contrary to work carried out by the company using data collected by US and Brazilian laboratories - which showed no contamination. Dr Flavio Zambrone, the toxicologist hired by Shell to carry out their analysis, accused City Hall of using low benchmarks compared to those recommended by the World Health Organisation. Shell has already made a commitment to decontaminate the site and has provided drinking water, social counseling and medical exams for residents.” Source: CSE News (based on Reuters) Shell contests Brazil toxic site report, September 18, 2001 http://www.mallenbaker.net/csr/CSRfiles/CSRNews.html

Big Scandals Lead to More Government Interventions Including New Regulations “Monsanto’s moves to introduce genetically modified(GM) wheat into Canada has put the company once again at the heart of a storm. Canadian grain farmers have jointed up with environmental and health activists to call upon the federal government to block the introduction of the wheat. Farmers are particularly concerned that Canada’s reputation for quality grain could be harmed, particularly in markets such as Europe, where concerns about GM are highest.” Source: CSR News (based on CBS and Japan Times) Monsanto at heart of Canadian GM crops concerns, July 25,2001 http://www.mallenbaker.net/csr/CSRfiles/CSRNews.html

Making Eco-Efficiency Pay – Unilever For multinational Unilever, eco-efficiency means making more from less - measuring performance to ensure the environment doesn’t suffer and saving millions on production costs. Business Benefits Between 1995 and 1999, Unilever substantially reduced its overall impact on • • the environment while increasing output • • Each site or Business Group can make cost savings by reducing any of the six eco-efficiency parameters. • • Over the next five years, manufacturing efficiency will be increased and the process is forecast to save around £100m.

Consulting Services - DuPont For example, “in the US chemical company DuPont has extended the strategy of investing in clean-up operations: it has profited from the expertise gained from tackling its own problems by forming a unit to sell clean-up services to other companies. It expects annual revenues of more than $1 billion dollars from this business. Forestry products group, Weyerhaeuser, has also expanded an internal programme into a market offering.” Source: Survey-Mastering Management, Financial Times, October 30, 2000

Co-operative Bank-benefits of CSR “Businesses have found clear benefit from social and environmental involvement. Companies which take these issues seriously not only achieve benefits to society; they can also improve their reputation, improve competitiveness, and strengthen their risk management. “ Source: Winning with Integrity, Co-operative Bank Benefits of Good Community Relations – ARCO “A few years after calling for moratorium on all petroleum development activities in the Pastaza province of Ecuador, an indigenous people’s organization (OPIP) and other groups began working with ARCO to move its oil projects forward. This was, in part, due to ARCO’s ongoing efforts to support leadership among community groups, contribute to local institutions and engage stakeholders in a dialogue about environmentally and socially responsible oil exploration and community development in their concession areas. Though faced constantly with challenges and difficulties, ARCO was able to build positive working relations with various community groups in their area of operations. A key focus of concern for these indigenous peoples groups was a community development plan that would be carried out in the exploration and development phases of the operations.” ….Costs of bad community relations “Representatives of Ecuadorian indigenous groups in Napo and Sucumbios provinces have sued an oil company for $1.5 billion in damages in a US court. These groups claimed that the company caused environmental damage that adversely affected the health and well being of indigenous communities. The lawsuit was failed in 1994, the same year that ARCO signed an agreement with indigenous people in Pastaza province to resolve through dialogue the issues surrounding its prospective oil development. In 1997, the government of Ecuador asked the US court to reopen the case of Napo and Sucumbios provinces. The lawsuit has not jet been resolved.”

Source: IFC – A Community Development Resource Guide For Companies, December 2000, chapter I, p. 2 Companies Discover a Competitive Advantage in Fighting AIDS “Companies have discovered a competitive advantage in fighting the spread of AIDS. AIDS devastates individuals, families and communities. In addition, AIDS adds to health and insurance bills, employee absences and forces companies to recruit and train workers to replace employees who die of AIDS. In Thailand GRAND HYATT ERAWAN and the PAN PACIFIC, both large Bankok based hotels, have been leaders in the business efforts to fight HIV?AIDS. Both companies have extensive worker education and training programs and free condoms distribution for staff members. Both are active members in the Thai Business Coalition on HIV/AIDS and involved in AIDS prevention and treatment programs in the broader community. The two hotels also participate in a UNICEF project that offers training in hotel and life skills to young women from northeastern Thailand, the highest risk region for forced prostitution. In Zimbabwe, DAVID WHITEHEAD TEXTILES developed extensive HiV/AIDS educational programs after discovering that 21% of the donors in a company-sponsored blood drive tested HIV positive. The company involved employees and the National Department of Health in an effort to create theater groups to produce a play on AIDS. The theater group and company-trained AIDS Information Officers are involved in AIDS prevention and education efforts for company employees and in theaters, nightclubs and schools in the cities where company factories are located. In the first three years of the effort, sexually transmitted disease cases in company clinics fell by over 50% and condom distribution in company clinics increased dramatically. Source: IFC – A Community Development Resource Guide For Companies, December 2000, chapter I, p. 5

Business Benefits - Readings ¾ CSR and Financial Performance: Correlation or Misspecification? ¾ Performance Implications of Incorporating Natural Environmental Issues into the Strategic Planning Process: An Empirical Assessment ¾ Do Corporate Global Environmental Standards Create or Destroy Market Value

CSR and Financial Performance: Correlation or Misspecification? “Researchers have reported a positive, negative and neutral impact of corporate social responsibility (CSR) on financial performance. This inconsistency may be due to flawed empirical analysis. In this paper, we demonstrate a particular flaw in existing econometric studies of the relationship between social and financial performance….” Source: A. McWilliams and D. Siegel, Strategic Management Journal, 21:603-609, 2000 Performance Implications of Incorporating Natural Environmental Issues into the Strategic Planning Process: An Empirical Assessment “This paper explores the ability of firms to integrate a critical strategic issue, the natural environment, into the strategic planning process within the natural resource-based perspective. Using survey data collected from a wide variety of firms and industries based in the United States, we empirically examined the antecedents and effects of integrating the natural

environment into the formal planning process. These data were analyzed using structural equation modeling with the LISREL technique. Overall, our data provided strong support for the hypothesized relationships. Specifically, we found that the level of integration of environmental management concerns in the strategic planning process was positively related to financial and environmental performance. Furthermore, we found that the greater the functional coverage and the more resources provided to environmental issues, the greater the integration of environmental issues in the planning process. These results suggest that concern for environmental issues may yield competitive advantages in the marketplace as the natural resource-based perspective suggests” Source: W.Q. Judge Jr. and T.J. Douglas, Journal of Management Studies 35:3 March 1998

Do Corporate Global Environmental Standards Create or Destroy Market Value “Arguments can be made on both sides of the question of whether a stringent, global corporate environmental standard represents a competitive asset or liability for multinational enterprises investing in emerging and developing market. Analyzing the global environmental standards of a sample of US-based MNEs in relation to their stock market performance, we find that firms adopting single, stringent global environmental standard have much higher market values, as mentioned by Tobin’s q, than firms defaulting to less stringent, or poorly enforced host country standards….” Source: G. Dowell, S. Hart, B. Yeung, Management Science, Vol. 46 no. 8, 2000

Socially Responsible Investment Socially responsible investment (SRI) refers to incorporating investment decisions with social and environmental concerns and personal values. SRI should not be confused with “socially directed investment”, which is aimed at specific community development projects and do not require “normal market return”. SRI funds have a significant presence in the capital markets and the available financial resources are constantly increasing. Social investors who invest in SRI funds include both individuals and institutions. Four key SRI strategies have evolved over the years: Screening describes the inclusion or exclusion of corporate securities in investment portfolios based on social or environmental criteria. Socially concerned investors generally seek to own profitable companies with respectable employee relations, strong records of community involvement, excellent environmental impact policies and practices, respect for human rights around the world, and safe and useful products. Conversely, they often avoid investments in those firms that fall short in these areas. Source: Social Investment Forum Shareholder Advocacy describes the efforts of investors to influence the behavior of a company. This strategy gained prominence during the boycotts of companies doing business in South Africa, prior to the dismantling of apartheid. The four levels of shareowner activism are: voting your proxies on social and environmental issues at

annual meetings, initiating dialogue with company management, sponsoring shareowner resolutions, and, finally, divestment. Source: Shareholder Action Network Community Investment addresses the financial needs of low income and underserved communities. Community investments can be made through institutions such as community development banks, community development loan funds, and community development credit unions. These investments include products such as loans, checking, savings, CD's, and money market accounts. They can be at market or below market rates. Source: Social Funds Social Venture Capital is a type of screening, but refers specifically to investing that integrates community and environmental concerns into professionally managed venture capital portfolios. The essence of venture capital lies between providing capital and management assistance to companies creating innovative solutions to social and environmental problems, and institutional investors investing on potential one billion dollar technologies. Source: Social Investment Forum Although, primarily present in the US, UK, Canada, and Australia, SRI is growing rapidly in Europe where enabling legislation, such as UK’s requirement for pension funds to disclose the social and environmental performance of their bond portfolios, provides a fruitful ground for SRI funds. With the globalization of the capital markets, the impact of SRI goes beyond developed countries and has an increasing influence on companies in the emerging and developing world as well. Companies are realizing that by incorporating CSR issues in their business strategy, they can facilitate access to additional capital available through SRI funds. However, at the same time, they expose themselves to more rigorous scrutiny by the SRI funds. The evolution of SRI has already gone through four phases: 1. Using “negative” criteria for selection of companies – excluding companies involved in specific activities, including: i. Making or selling • Ornaments Alcoholic drinks • Tobacco products • ii. Poor environmental record iii. Exploit labor in developing countries iv. Gambling or running casinos v. Abuse of human and animal rights; 2. Using “positive” criteria – focusing on specific sectors or themes; 3. electing companies through sustainability criteria, and 4. In addition to sustainability criteria investors are also assessing companies relationship with other stakeholders. SRI funds can influence corporate policies through shareholders advocacy. Corporate law in many countries allows shareholders with a minimal stake in a company ($2,000 in the US) to place items on the agenda of shareholders meetings and require that a vote be taken on these matters at meetings. Then that can be used by SRI funds to address CSR misconducts by companies. As annual meetings of large corporations receive wide press coverage the possibility of putting the CSR issues at the meeting is a proactive mechanism which pressures management to take CSR concerns with full seriousness.

According to a report by the Interfaith Center on Corporate Responsibility in 1999, SRI managers filed about 220 resolutions with more than 150 US companies. The largest number covered environmental issues, with equity and corporate responsibility taking the next two places. In addition to hoping to “do well by doing good” by investing in socially responsible companies, investors are recognizing the importance of SRI as a means for broader investment portfolio choices for their clients. In many cases SRI funds have outperformed the average market return, and proved to be a less volatile investment. Some stock exchanges are also introducing CSR indexes.

Socially Responsible Investment - Readings ¾ What is Socially Responsible Investing? ¾ Can One Invest Responsibly and Still Make the Same Amount of Money? ¾ SRF Development ¾ Fourth Generation on the Socially Responsible Investment Market ¾ Increasing Social Investment Fund in the US ¾ How big is the ethical investment market in the UK? ¾ Impact of Pension Fund Regulation in UK on Socially Responsible Investment ¾ The Effect of Socially Activist Investment Policies on the Financial Markets: Evidence from the South African Boycott

What is Socially Responsible Investing? Integrating personal values and societal concerns with investment decisions is called Socially Responsible Investing (SRI). SRI considers both the investor's financial needs and an investment’s impact on society. With SRI, you can put your money to work to build a better tomorrow while earning competitive returns today. Social investors include individuals and institutions such as corporations, universities, hospitals, foundations, insurance companies, pension funds, nonprofit organizations, churches and synagogues. Source: Social Investment Forum

Can One Invest Responsibly and Still Make the Same Amount of Money? Past performance suggests that it is possible to achieve an equivalent financial return from ethically screened stocks and shares as from similar stock market investments. Indeed, some suggest that ethical investments can perform better than the average. Of course, as with conventional investments, some ethically screened funds will perform better than others and the value of investments can fall as well as rise. Research is beginning to show that the performance pattern for many ethical investments may track the FTSE All-Share index less closely than does the average unit trust. This means that investors should not expect ethical investments to match closely the performance pattern of this index. Some ethical investment institutions use differing stock selection criteria to meet the needs of investors, such as institutions, who are particularly concerned about this aspect. Many cause-

based investments specifically offer low rates of financial return in order to allow the delivery of a higher social return. Other cause-based investments seek to offer competitive financial returns not the highest but not the lowest either. Source: UK Social Investment Forum SRF Development The United States, United Kingdom, Canada and Australia followed the same developmental model, with retail SRI funds being launched after SRI had been pioneered by churches and charities in their own country. The difference lies in the legal structure which differs between the United States and the United Kingdom (Canada and Australia follow UK law). These different structures have led to the United Kingdom, Canada and Australia adopting an avoidance/ engagement approach, while in the United States, shareholder activism has dominated. Source: Oxford Analytica Fourth Generation on the Socially Responsible Investment Market Socially responsible funds of the first generation are built only based on negative criteria. This means that the fund manager when drawing up the portfolio will exclude companies that offer specific activities, products or services. The investor gets a guarantee that his/her money is not, for instance, being spent in the arms trade or nuclear energy production but that's as far as it goes. These types of funds offer the investor a chance to protest but this formula is less suited to providing a positive stimulus to the corporate world. First generation funds are mainly popular in the Anglo-Saxon world. The second generation of sustainable funds applies positive criteria focused on a specific sector or theme. Researchers for this type of funds actively look for companies performing well in a specific field, for instance, by implementing a special social policy or by making considerable efforts to produce ecologically responsible products. For these funds, companies are screened for only one or some aspects of sustainable entrepreneurship. This mainly concerns companies which carry out a reasonable sustainability policy in other areas - a good social or environmental policy are usually part of an overall company plan. Examining second generation funds is often the first step in looking into the third generation investment funds. Third generation investment funds can rightly be called "sustainable" in the sense that investigations into these funds comprise all areas of sustainable entrepreneurship. Based on this comprehensive approach, companies that are really suited to sustainability are selected. Investigations focus on internal staff policy and the relationship with the social environment as well as efforts made in the environment and the ethical aspects of the company's economic policy. In addition to the third generation, a fourth generation has arisen. Just like the third generation funds, these funds are invested in sustainable enterprises in the widest sense of the word. The added value, in this case, is in the quality and the method of evaluation. Vital to fourth generation evaluation is the communication with 'stakeholders' of a company. The stakeholders are all the "social shareholders" who are directly or indirectly involved in the company - shareholders, company managers, employees, trade unions, customers, suppliers, people living near the company, members of environmental, peace or third world organizations, etc. Source: ETHIBEL Increasing Social Investment Fund in the US “Socially responsible investing in the United States experienced rapid growth from 1997 to 1999. All segments of social investing – screened portfolios, shareholder advocacy efforts and

community investment – expanded… Social investment grew from $1.185 trillion in 1997 to $2.16 trillion in 1999.” … [more] Shareholder activities have been one of the main reasons for the increasing trend of SRI funds in the US. How big is the ethical investment market in the UK? There are now more than 50 retail ethical investment funds in the UK. These funds all apply environmental, social and/or other ethical criteria to the selection of their investments. The value of these funds stood at £3.7 billion at December 2000. In addition to this there is now a large amount of institutional investment money which is either screened according to ethical criteria or where an ethical engagement policy is applied to lobby companies in order to improve their policies and practices. The value of these funds grew from £199.3 million in Q2 1989 to £3.7 billion in Q4 2000 (an increase of over 1750%). Chart for the growth of pooled screened funds Impact of Pension Fund Regulation in UK on Socially Responsible Investment A study of UK institutional investors and analysts, conducted by MORI in June 2000, found that over half of institutional investors and one third of analysts agreed that companies’ social and ethical performance is now more important to them due to the pension fund regulation on SRI that require trustees of pension funds to disclose their stance on social, environmental and ethical considerations. Source: MORI Survey

Pension Funds in UK: Surveys in the UK suggest that 59 % of pension funds incorporate socially responsible investment in their investment strategy. Data source: Ethical Investment Research Service. The Effect of Socially Activist Investment Policies on the Financial Markets: Evidence from the South African Boycott “The most important legislative and shareholder boycott to date, the boycott of South Africa's apartheid regime, is studied. It is found that corporate involvement with South Africa was so small that the announcement of legislative/shareholder pressure or voluntary corporate divestment from South Africa had little discernible effect either on the valuation of banks and corporations with South African operations or on the South African financial markets. There is weak evidence that institutional shareholdings increased when corporations divested. In sum, despite the publicity of the boycott and the multitude of divesting companies, political pressure had little visible effect on the financial markets.” Source: Siew Hong Teoh, I. Welch and C.P. Wazzan, Journal of Business, 1999, vol.72, no.1

Socially Responsible Investment - Case Studies ¾ ¾ ¾ ¾ ¾

SRI indexes List of Socially Responsible Mutual Funds SRI Research ServicePension Funds in UK Shareholder Proposals Human Rights Abuses - Talisman Energy

¾ Community Banks SRI indexes o

Dow Jones Sustainability Group Index (DJSI) family is derived from and fully integrated with the Dow Jones Global Indexes. They share the same methodology for calculating, reviewing and publishing the indexes. The Dow Jones Sustainability World Indexes (DJSI World) consist of more than 200 companies that represent the top 10% of the leading sustainability companies in 64 industry groups in the 33 countries covered by the DJGI.

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FTSE4Good is a series of benchmark and tradable indices designed to identify companies that meet social responsibility criteria and to provide a means for investment in those companies. FTSE’s objective is to create an index that reflects good practice in corporate responsibility globally. At the same time, we will maintain the core FTSE qualities of transparency and liquidity in order to create an effective financial index. Hence, standards will be set for socially responsible behavior that are achievable by a substantial proportion of listed companies.

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The Calvert Social Index is a broad-based, rigorously constructed benchmark for measuring the performance of large, US-based socially responsible companies. Calvert starts by taking the 1,000 largest companies in the US, representing stocks listed on the NYSE and NASDAQ-AMEX and ranks them in descending order based on their threemonth average market capitalization.

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The Domini 400 Social Index (DSI) is the established benchmark for measuring the impact of social screening on financial performance. Launched in May 1990, the DSI is the first benchmark for equity portfolios subject to multiple screens. The DSI has outperformed the S&P 500 on a total return basis and on a risk-adjusted basis since its inception in May 1990.

List of Socially Responsible Mutual Funds o

Socially Investment Forum, a national nonprofit membership organization promoting the concept, practice and growth of socially responsible investing has a list of over 85 socially responsible mutual funds.

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Social Funds list about 80 domestic and international social funds.

SRI Research Service o

Ethical Investment Research Service Ethical Investment Research Service provides the independent research into corporate behavior needed by ethical investors to enable them to make informed and responsible investment decision.

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UK Social Investment Forum A UK membership network for socially responsible investment.

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Sustainable Investment Research International Group (SIRI) A coalition of 10 research organizations aiming to provide and promote high quality social investment research products and services throughout the world.

Pension Funds in UK Surveys in the UK suggest that 59 % of pension funds incorporate socially responsible investment in their investment strategy. Data source: Ethical Investment Research Service. Shareholder Proposals In the US, 650 shareholder proposals were filed between January and May 2001, of which 250 were concerned with societal issues including 58 on environmental issues and about 50 on global labor standards. For instance, the New York City pension funds monitors, through 3rd party, companies they invest whether companies’ global operation and its sub contractors are implementing the ILO conventions. Another example is a coalition of shareholders including shareholder activists, investment managers and religious investors, who placed a proposal against BP Amoco to cut ties with PetroChina whose activities in Tibet raised a concern, another to move beyond fossil fuels. Source: Meghan Voorhes; Director, Social Issues Service, Investor Responsibility Research Center http://www.multinationalguidelines.org/oecd/Documents/voorhesspeech.htm Human Rights Abuses - Talisman Energy “A measure passed by the US House of Representatives focusing on human rights abuses in Sudan will potentially see Talisman Energy (whose social report on its operations in Sudan was reviewed in this newsletter) ejected from the New York Stock Exchange…” Source: Mallen Baker's Corporate Social Responsibility News Community Banks Community Banks are for-profit, insured banks or savings institutions that target low-income people or others who lack adequate access to financial services. Given the typically low to moderate-income customer base of development banks, they often depend on additional deposits from outside of the community to fund their lending activity. By opening accounts at development banks, socially responsible investors enjoy the security of FDIC insurance, a competitive return, and an unparalleled social impact for their money. For the investor concerned with improving distressed communities development banking provides the most direct investment vehicle possible. Source: Social Investment Funds

Socially Responsible Investment – Data

SRI Returns o

The Storebrand Scudder Environmental Value Fund (EVF) has consistently beaten the Morgan Stanley Capital International World Index. The EVF has grown from $70 million to $140 million in three years.

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Innovest Strategic Value Advisors asserts that eco-conscious companies outperform the S&P500 by 2.8% per annum average.

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Sustainable Asset Management’s “best in class” selection of chemical and pharmaceutical firms gave investors a return of 227.5% over four years, compared with 119.3% for less environmentally aware companies.

Ethical Funds - Less Volatility The performance of ethically screened funds can be less volatile than funds in the mainstream market. An EIRIS study showed that annualized volatility (the measure of risk) was 10.4% for ethical funds and 10.9% for non-ethically screened funds (October 1999). Source: FTSE4Good