Carving up the elephant

CSR is never going to last. It is a management fling, which will go away in a few years. It is what we have always done noes we just call it something fancy…

For most laypersons the concept of CSR is like a very big elephant that is impossible to understand the size and reach of. There seem to be no end to what is included into the realm of CSR as long as it has to do with stakeholders, ethics, the environment or any of the other labels, which are included. And if one does not understand something it is easier to dismiss it all together than try to understand what the concept brings to the table of progressive business development.

In my thinking it is about your ability to take this ever expanding and complex concept into something that can be managed and developed in an organisational setting.  The Global Compact, OECD guidelines for multinationals or the private ISO26000 are all attempts to carve up the elephant up into manageable pieces. Not that any of these approaches are flawless, but they do represent systems that business can use to manage their CSR activities and create a meaningful framework.

The important thing to think about when creating a CSR framework for business is that it has to be directly related to what the business do. So if one is in transport your effort have to be about how CSR helps you business be even better at what it does. Too many times I have seen CSR reporting and initiatives which are detached or represents a remote connection to strategies and mission.

My advise to business would be that rather than doing a half-hearted effort, it would be better to focus on areas outside CSR which brings more value such as systems for governance, quality or excellence in process management. When the business matures and internal systems can support the effort, there is a much better chance of success with systems like CSR that goes beyond the close stakeholders.

Pros and cons for third-party evaluation of SRI investments

How much should you trust third party evaluation of your SRI portfolio companies? As a SRI interested investor or researcher you might want to have some their party have a look at the companies that you are investigating but how much can you really trust their evaluations? This question comes up more and more frequently as third part evaluations become much more freely available.

I have compiled a short list of issues that you might want to take a look at when evaluating if the intelligence can be used in your investigation of companies.

  1. Transparency is of cause a major concern and just because a report or paper is made from somebody outside the company it does not necessary make it more useful. It is not that third-party investigations are necessary biased but you need approach their reporting in much the same way you would corporate self-evaluation and reporting, with a fair amount of scepticism. Take a look at how they present their data and look for their source of information is if the raw material is available for your own analysis it is the best if they only present the conclusions then take it with a grain of salt.
  2. To what extend does the analysis base its conclusions on Corporate data? A lot of analysis only have corporate self-reporting as it source but might come up with very different conclusions that internal analysis came up with. What you need to do is look for triangulation of data sources. Were interviews or questioners conducted during the process, were experts included and what was their background (if it is just people from the analyst own group they might not be as reliable as other experts might be) or were data verified by other means. I recommend that you at least look for one other source of aw data other than corporate information. This will show you that some efforts were put into doing the report and some level of forensics were conducted.
  3. The analyst themselves can have a big impact on how reliable the data is. Some analysis are doing the analysis on a part time basis while others does it for a living. This does not mean that the work of the amateur cant be very valid it just means that when you evaluate technical data you might place more reliance on what the professional have to say. The person who sits with data on finances, CO2-emissions, supply and value chain data have a great deal of routine in looking at these numbers and have a good idea when they are off the mark so to speak.
  4. Standards are a big issue within CSR not just because they are evaluated against but also because they are seen as normative truths. We all know standards like the Global Compact (GC) and reporting according to Global Reporting Index (GRI) or the new ISO 26000 but just because standards are used they o not constitutes the truth. Look at them as a way to present data not as a factor for goodness. A A+ rating just not represent a higher degree of goodness than a C rating in GRI it just shows you what corporate data should be available to you for analysis.
  5. The Scope of data within CSR is constantly being debated. Some would include everything others limit their scope to just include the 10 principles in the GC. When you do your analysis you should scope what you perceive as valid data and collect sources of material that fits this scope. If you find evidence that is outside the scope but have a impact on your analysis you should put it aside for further analysis later one when the rest of your investigations have been included. This exercise will help you not only evaluate your ability to create a correct scope but also understand the complexity of your target company.
  6. Academics or not just academics. I would whish that academics could be seen as beacons of truth but the fact is that many have to make a living too and some do this by making reports for different institutions. This does not mean that it is not quality work that is being produced it just means that you can look at the reporting as you would a academic paper which have been evaluated by peers. Do not judge a report by the name on the cover.

How to make a CSR report

What should be in your CSR report? There are no strict guidelines out there and no universal way to put such a report together but there are some best practices, which you can draw upon in order to satisfy some of your key stakeholders. One key thing to remember is that CSR is not a Marketing or Public relations tool so it is not about showing the very best of the companies products or only about all the good you have done in the past year. The report is about showing the world that your company know that we live in an imperfect world, but that you will do your part to make it better and what you are going to do about it. Here is a quick guide to what should be in your report and why.

Introduction

Your introduction should include a statement by the CEO or Board of directors on why CSR is important to the company and how management see CSR in relation to its core business area. Remember to include information about the company, its activities and the products it is producing. You should also include a organisational chart that shows who is in charge of which area and their key responsibilities if you want to communicate transparency and openness then you should also have contact details for each person. A generic mail like csr@company.com does not do the trick. When stakeholders with a request want to know something they do not want to meet a lot of red tape. Remember in CSR communication goes both ways it is not only you that is communicating to the world you are in practice inviting the world to communicate with you.

Methodology

Show what you are reporting on and what you have excluded and why. There is nothing as bad as being caught in a lie even when you did not intend to make one. You should also show how you collect data and what degree of reliability one can put into it. If you are only getting information from your supply chain through self reporting you should state this. It is important because it makes you data less reliable then if you did your own investigations. If you have a third party participating in the data collection and/or verification it is important that you have this in this section.

Governance

How do you manage your day-to-day operations and how do you ensure that the risks that are involved are reduced as much as possible. There are plenty of tools that you can choose from when it comes to risk analysis and mediation in my experience one of to build a tool that fits the company you are working for and not a shelf product. While these can be very good they seldom fit all your needs or are to general in areas were you wanted to be specific. This is not saying that they are useless and can be a good inspiration for your work but you need to have something that works not necessary looks well. Some of the tools you can draw upon are ISO 31000, COBIT, Accounting standards like IFRS, Sarbanes-Oxley and for banks BASEL 2, the OECD principles for governance can also be a good source of information.

Most stakeholders would also like to know how the process is for handling information coming from them so make sure that you have a procedure for how information from whistleblowers, NGOs, CSOs and governmental bodies are handled.

Financial information

Some might think that financial information should be let out of CSR reporting but nothing could be more wrong. It is in the interest of most stakeholders that the company is doing well and while it is also doing good. Information on financial performance should include traditional indicators like profits, share information, turnover, etc. but also data on indicators which is normally not featured in traditional annual reports like tax information, philanthropic projects, sponsorships and the likes.

Information on what markets the company is present on and what prospects that the company sees in these markets should also be available. This is important because it will give stakeholders an insight into how the company see its future role in other markets and how it is going to handle its supply chain.

Environment, Energy and materials

If your company is producing or consuming raw materials this could be you biggest point in the report. There is an increased interest from stakeholders in knowing were from the minerals and other raw materials are coming from in their products. Lately the mobile industry have been under pressure to disclose information on their purchasing practices as some of the metals they have been using is coming from conflict areas like Congo. If there are issues, which can be of concern you should mention this even though you cant, do anything about it right now. It is better to communicate that you know that there is a potential issue than to ignore it all together. Invite other stakeholders to help you out on solving the potential problem.

Information on energy consumption and emissions should follow the guidelines that have been issued by local government that in turn is linked to the UN guidelines. This ensures that your company can be compared to others in the same industry.

Social

When it comes to the social impact of corporate activities there are several groups, which need to be paid attention to. First of all there are the employees or internal stakeholders. This group is of cause by the majority of companies regarded as the most important mainly due to the fact that they have a legitimate claim to the corporate activities and in most cases also have the relative power to back these claims up through actions such as strikes or other means of persuading management. When employees have such a prominent place in your organisation you should of cause show what you do to ensure that you live up to your commitments to them. Remember that being able to show that the company is a good place to work will attract more qualified candidates for you job opening so there is a good reason why you should do something about communicating your efforts. There are several things you can do:

  • If the company is already issuing health and safety reporting it could be a benefit to incorporate this data into a combined CSR report.
  • If you have a good working relationship with the unions you can ask them to write a page in your report. This will give the opportunity to show that the CSR report is not only a marketing/PR tool but that you actually do what you preach in terms of transparency and engagement with key stakeholders, also the ones that are critical.
  • Write about what you do to keep your employees qualified and up to date with the newest developments within your field. This communicate that you are willing to invest in your employees.
  • If you give employees voice in your CSR report make sure to say that they can say anything that they would like and that you have their title and position within the organisation in a place where it can be seen. If you only use management testimonial then you credibility will not be that big compared to when you use employees from all the organisational layers. Also keep in mind to have a even distribution of gender, age and ethnicity as well.

Human Rights

While environmental and Social issues have been on the agenda for a long time is the area of Human Rights and business a relative new area. However, with increased media and stakeholder attention coming to the area as corporate activities are stepped up in countries like China and the Middle East there are real issues of Human Rights abuse, which the company must address. For example are there no free unions in China that makes it hard to live up to the Global Compacts third principle, which dictates that companies should “uphold the freedom of association and the effective recognition of the right to collective bargaining.”

Even though that your company might not be directly in charge of or have power to change companies within the supply chain key stakeholders will hold you accountable for whatever happened in among your suppliers. There for you have to implement systems and show how you make them work that target abuses and violation of basic Human Rights with the companies that you are dealing with. The governance systems can have many names but in general they are called ‘Code of Ethics’ or ‘Code of Conduct’ and are build around the principles that you deem important in order to manage the risks that you potentially could be exposed to.

Remember that the principles around Human Rights are not just about ensuring basic rights for the people in you supply chain. But it is also about promoting the rule of law, building relationships with the local community, understanding your sphere of influence and maybe most important of all is to ‘do no harm’ in the communities you are affecting.

Perspectives

So what is the most important thing you are going to achieve in the next year? What are your goals and aspirations? These are some of the answers you have to give when you round up your report. How is it that the vision that the CEO set out to in the introduction is going to be put into practice and how is it you are going to make sure that it has been done. Like all the other activities that your business is engaged in, your CSR also have to be managed effectively in order to work and this means that you Plan – Do – Check – Act on all your indicators. You measure and hold people/managers accountable for their success.

Effective communication of your report

Ones you have finished you need to tell the world what you have done and what you plan to do in the future. I have seen hundreds of press releases that says “XXX company have now issued the sustainable report for Year XXX” this is of cause a way to tell the world but if you think about it will properly not attract that many readers. So you tell the world what you are trying to achieve instead “Company XXX is educating seamstress in its supply chain” or “Company XXX is aiming for zero emissions by 2020”. Be proud of what you are out to do and tell the world about it. If you are not you are properly doing something wrong.

Remember that there is no standard CSR report so try to be inventive and creative with your reporting but make sure that you also do your footwork and get the information in there that your stakeholders are looking for.

Good Luck

Dynamic CSR Reporting the future of stakeholder engagement – Introducing the CSR Sustainability Index

Here is an idea… What if we reported on the ability of organisations as a Corporate Citizen Live? Corporations are already evaluated on a minute-by-minute basis through the stock market so why not transfer this basic idea to the realm of CSR and Sustainability.

The idea would be to have a series of indicators on which a corporation can be evaluated through social media and other ways of interacting with their stakeholders. Some areas would have a lot of activity while others would only be changed on a weekly or monthly basis. Just like volatility on the stock market which looks at how much a certain stock is traded the indicator for sustainability would only change when somebody evaluate or leaves a comment.

Like the Flameindex that looks at poor or critical media coverage the CSR Sustainability index would look into how certain companies did on a overall sustainability agenda. But it would incorporate an extra layer which would cover the individual areas of some of the well knows measurements of sustainability and governance.

My suggestion would be to monitor individual companies on several social media channels, coupled with the company’s own PR communication, NGO reporting, College and University Students reports analysis and professional analysts evaluation of corporate performance. The idea is to cover as many of the organisational stakeholders as possible while at the same time creating an easy point of access for further analysis and investigation.

For example, if a Professional analyst raises a red flag in the area of governance in a company a further investigation by other stakeholders might uncover problems in the area of labour law and corruption within the same company. The problem area would not have been uncovered if there had not been a red flag warning in the first place in a area normally not covered in conventional sustainability reporting.

On the other hand if a company had a best practice on how to combat child labour in their supply chain this knowledge could be flagged and other organisations could learn and adapt this knowledge to their own operational practices.

The platform would of cause be web-based providing live data on the largest companies in the world who are also the most exposed to global sustainability issues. Using the Global Compact as a starting point it would be the ten guiding principles that would form the basis of the index.

Human Rights

Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights.

Principle 2: make sure that they are not complicit in human rights abuses.

(These principles could be monitored through tapping into local/global news channels were the company is active, monitoring local NGO activity, Whistleblowing on social media and own corporate reporting.)

Labour

Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining;

Principle 4: the elimination of all forms of forced and compulsory labour;

Principle 5: the effective abolition of child labour; and

Principle 6: the elimination of discrimination in respect of employment and occupation.

(Labour unions could be provided with an excellent channel for reporting abuses they cant communicate through the corporate pipeline but would like to have attention on. The CSR Sustainability index would provide an up to date indicator on how the company performed right now so that action can be taken in order to remedy the issue. Under normal circumstances it could take weeks, months or even years before an issue makes the media. But though the index it would be possible to raise awareness a lot faster just because it is linked to so many other channels of communication and organised in a way that makes it possible to get a fast overview of issues of concern.)

Environment

Principle 7: Businesses should support a precautionary approach to environmental challenges;

Principle 8: undertake initiatives to promote greater environmental responsibility; and

Principle 9: encourage the development and diffusion of environmentally friendly technologies.

(Environmental reporting has been around for many years and there are several channels, which can provide information on corporate environmental performance. There is of cause the organisations own reporting, which will be important, but this information should be seen in the light of what NGO say, municipalities, news channels and whistleblowers have to say. This would create a reasonable way of evaluating a company environmental impact and if that how this measures up against the expectations of its stakeholders. In many cases we tend to look upon environmental issues disconnected from the specific industry meaning that we look upon the carbon emissions of a clothing manufacturing company measure up against a producer of computer components, but who says that this is a important factor for the stakeholders? So, the reporting should of cause reflect the expectations of the people who have the most interest in the performance of the organisation and not some universal agreed standard that tells one close to nothing.)

Anti-Corruption

Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery.

(One of the least transparent areas of the Global Compact and the one in my mind with the most potential. While the issue of corruption is less salient in the developed world it is a problem that affects all companies who work in an international context. The problems that corporations faced are backed by the resent publish annual report by transparency international that documents the impact of corrupt behaviour. As Huguette Labelle, Chair of Transparency International states, “During 2010 we continued to see the terrible cost of corruption. Sixty-four million more people were pushed into poverty since the financial crisis struck, according to the World Bank. Such tragedies make us ever more resolved to make a difference through our work.”. But as we all know these things are interconnected and one cannot look upon corruption without also taking into account, at least at some level, human and labour rights, environmental issues and not least education and gender. So the complexity of anti-corruption is difficult to comprehend and get a real overview of without some kind of systematic approach with the CSR sustainability Index such a platform would be provided at least in the form of information that can feed more in-depth investigations.

A think a unifying approach is appealing as I for one have a difficult time finding out what is PR, Spin and lobbyism from all the channels out there wanting my attention. I think it would also be appealing as It would provide a more “true” picture of who is really the leaders on the “goodness” market and how is just good at talking about how good they are. How would not be voted the best when some of your worst critics is on the voting panel?

Back to the Why of CSR – Its the story that matters

From time to time it can be difficult to establish what it is all good for why is it that we are so focused on the business case, brand value, if we are listed on the FTSE4Good or not etc. We tend to be preoccupied with the technicalities or the How of CSR and not as much on the Why. The Why tend to be taken for granted because there is so much pressure on showing that we can be transparent, accountable or that we have a effective plan for our work. But when we are forced to think about and explain why corporations are engaging actively in CSR and goes beyond the mere management of stakeholders we come back to the basics of telling the story of doing good.

I have never met manager or business leaders who have not taken a stand on their business impact on the society they are part of. Some would claim that paying tax would be sufficient others have a broader perspective on the thinking, but common for them all is that they have taken a stand and that they have a personal story to tell that explain that standpoint. They like all of us have focused on the Why while we might disagree or agree on the standpoint they do have a personal story to tell that have shaped their opinion and convinced them why their standpoint is the best solution to business role in society.

Now I could leap into a greater discussion on the different discourses of CSR explaining the pros and cons of Friedman or Porter and Kramers standpoints or maybe explain why Ruggie is such a proponent of political CR. But I will refrain from this discussion and just conclude that we have different perspective on the role of business and even though one manager might be reluctant and sceptical towards CSR in general, most large business are in some way engaged in the subject anyway. So even though management might be pretending not to be religious about CSR when they fold their hands they are still praying.

So back to the first question and the Why of CSR. In my opinion it is all about the story about the journey the corporation describes and the willingness to share this with the rest of the world. Basically explaining to the world about your individual Why. At the Global Compact website there are hundreds of stories about the Why of CSR some from companies that have integrated CSR in all parts and corners of their business others have only focused on a very narrow part of the CSR spectrum.

One of the places were one can find stories about the corporate CSR journey is in the Global Compact (GC) case story archive. The story being told are of cause about the ten focus areas of the GC and how different organisations work with each of these elements individually. The idea is that best practice can be shared among the participants and beyond. But the story behind the story is about how some stories are told better or have a greater appeal than others. For example have most of the storytellers a real and definite focus on environmental issues and especially their carbon footprint, but almost no one have a story to tell about their anti-corruption work. This differences in corporate attention gives a real picture of the Why organisation engage in CSR activities.

The same picture is evident when one examines the Communication on Progress, which is a precondition for continued membership of the GC. Corporation just seems to focus more on the areas were their most salient stakeholders have their main attention. In research done by Ralf Barkemeyer on CSR in the context of international development he found that the main focus was on environmental issues followed Human rights and Labour rights and last to come was anti-corruption. Another interesting thing that came out of the survey was that a very large proportion of the issues addressed by EU companies were directed at the home country and not as one might think at the countries were the corporation was most active.

This tells us that the Why of CSR should be found not in the effort top do well by doing good but rather as a way for companies to confront some of the issues that their most salient stakeholders have with the company. These can be customers who demand specific actions, but more likely it is home country media who highlight specific issues, which have the possibility of threatening to companies’ ability to operate efficiently. In resent years the majority of this pressure have been channelled through institutional investors who have a increased stake in ethical investments. While individual shareholders might not be influenced by corporate decisions the case is not the same for larger investors such as pension funds or large unions.  The reason why we make this distinction is based on some of the characteristics of these two investor groups.

Individual investors tend not to know their investments portfolio ethical performance. While they might know a great deal about the economic performance they have little or no knowledge or for that matter interest in the CSR work that the company is involved in. The reason is that most investors (excluding shareholder activists) have a very limited view on corporate performance stretching for a short period of time where they expect their stock to perform. This strategy encourages companies to focus on indicators, which they can influence with relative ease compared with larger problems one can find with the area of ethics and culture.

Institutional investors have a clear interest in long-term engagement meaning more than five years. First of all because institutional investors are normally able to invest relative large sums of money in a company and by that have a opportunity to influence its strategic development. Second, as a institutional investor you are under constant scrutiny by the press and other media on how you put together your investment portfolio. There have been several instances were investors have been forced first by the press and later one by their own stakeholders to change their investment strategy. Just take the Norwegian oil-fund, which I have blogged about some months ago and their engagement in Burma.

The lesson is that the Why of CSR is about the tory one tells or let other tell about the organisation. That organisations ethical performance is much more normative that we would like to think and that if we like stories about Ecology or Human rights there will also build a pressure for corporation to act within these areas. And that if we are enough that think the same way about a issue we will change corporate behaviour even though it is against the monetary logic of the moment.