Green-Washing Anyone?

Overview

Corporate Social Responsibility has become a popular topic in recent months. Much of the media coverage is about climate change related issues like renewable energy and carbon credits. Some companies have taken up corporate communications initiatives to green a business, often viewed by CSR industry experts as ‘green-washing’. Many Board of Directors are aware of social and environmental issues yet research by Qualvin Advisory Pte Ltd shows that they are not in a good position to make investment decisions (Note 1). Currently it is regarded as an operational issue. Most Boards do not have decision-making framework for these strategic and investment issues.

This article is based upon researching some global companies to determine emerging good practices for the Board of Directors. The research approach looked at public domain information such as Companies’ annual reports, statements on governance of social and environmental issues, and Corporate Social Responsibility & Good Citizenship Reports.(Note 2)

The companies looked at included:

Infosys, Toshiba, Sony, San Miguel, Globe Telekom, China Unicom, PetroChina, Taiwan Semi-conductor, SIngTel, Telekom Malaysia, Telkom Indonesia, Huthcinson Whampoa, China Mobile, National Australia Bank, Telstra, Timberland, Verizon, Unilver, Rio Tinto, Shell, Ricoh, GlaxoSmithKline, Westpac, Cadbury Scweppes, CocoaCola, GE, Exxon, Microsoft and GAP. Some companies were chosen because they had well established CSR policy and others from the same industry sector for comparison purposes.

From this research we have drawn some principles and guidelines for a CSR Board Sub-Committee. We recognise each company has different operating and business issues and each Board has different governance styles. The purpose of this research is to trigger awareness, discussion and mindful action.

The True Role of the Board of Directors

Let us start by providing a definition of the Board’s fundamental role as the following:

a. Provide entrepreneurial leadership, set strategic aims, and ensure that the necessary financial and human resources are in place for the company to meet its objectives;

b. Establish a framework or prudent and effective controls which enables risk to be assessed and managed;

c. Review management performance; and

d. Set the company’s values and standards and ensure that obligations to shareholders and others are understood and met.

We now have the context to explore the roles of: good corporate citizenships; sustainable business planning; corporate social and environmental responsibility; social, environmental ethical and governance risk management. All these could be wrapped under the banner of corporate social and environmental responsibility.

Boardroom Definition of Corporate Social Responsibility

Lets us make a Boardroom definition of corporate social and environmental responsibility (CSR). Other stakeholders may have different perspectives and definitions because they are industry consultants, NGO representatives, middle managers, customers, suppliers etc. Our perspective is the Boardroom and creating an ongoing business and sustainable wealth.

CSR in the Board-room is about ensuring the sustainability of the business in terms of the quality of ongoing future cash flow from products and services to customers and the sustainability and access to resources used by the company in providing the products and services. Key CSR stakeholders in this context include employees, consumers, investors, and governments’ regulation, licensing and legislation.

This definition will surprise executives whom thought CSR was about corporate philanthropy or signing expenses for stakeholder engagement and operations risk management.

CSR at its simplest is managing the risk of a competitor achieving a better financial, social and corporate reputation.

The result of a weakening reputation is for the company to: lose sales, lose market share and customers; diminish access to capital funding; diminish access to employee talent and motivation; secure less attractive commercial terms with suppliers; and increase the risk of adverse regulatory intervention.

CSR decision scope in the Boardroom is about choosing vision, setting goals and selecting strategies. These are the wealth creation activities in a company that every sophisticated investor looks at CSR in the boardroom. A secondary supporting role may be to review philanthropic choices or operational issues and stakeholder engagement.

CSR at its best has the philosophy that the purpose of the company is to create wealth for the shareholders and the world. This is enshrined in the mission and vision of great companies in many sectors like Toyota, Honda, Tata Steel and Timberland to name a few well known corporations.

The end result, either from a risk management or from a wealth philosophy is the same, a policy and process for the Company that ensures the goals, strategies, standards, systems and people required to meet the Company’s social and environmental responsibilities are in place.

Therefore this report is about the principles and guidelines describing the Charter, Policy and Procedures of a Board’s Corporate Social and Environmental Responsibility (CSR) Committee. This could be part of an existing standing committee coverings corporate level strategy, risks, health and safety issues.

Key Purpose of the CSR Committee

The primary function of the CSR Committee is to assist the Board in fulfilling the Company’s commitment to operate its businesses ethically, responsibly and sustainable consistent with the changing demands of the society. 

CSR focused considerations act to screen business strategies for their impact on multiple stakeholders in the larger environment called society. This is where a company operates and seeks to implement its strategy, mission and vision.

CSR is centered in the core duty of leadership that of goal setting strategy formulation and risk management.

Board-room CSR should not be confused with corporate charity and philanthropy although this aspect could be included.

Key areas of CSR focus are typically centred on strengthening company’s activities around physical resources, human capital, the environment, investor engagement, customer engagement, supply chain integration, regulatory issues, health & safety improvement and community involvement.

The Board Sub-Committee for Corporate Social and Environmental Responsibility (the CSR Committee) is to ensure that the Company has in place the policies, goals, strategies, standards, systems and people required to meet the Company’s social and environmental responsibilities.

The CSR Committee assists the Board of Directors of the Company (the “Board”) in providing the oversight, recommending goals and strategies and in reviewing the policies and conduct of the Company with respect to Corporate Social and Environmental Responsibility, which covers:

- General Business Principles

- Code of Conduct as we expect our employees and suppliers to share our standards and to operate in a legal and ethical manner.

- Employment Policy – to respect different cultures, traditions and employment practices, demonstrating commitment to good corporate values and ethical behaviour.

- Occupational Health Policy - to strive to protect the physical health and well being in the workplace.

- Occupational Safety Policy - to emphasise that safety is a core value and a major priority and to strive towards the Company’s goal of zero injuries.

- Environmental Policy – to prevent, or otherwise minimise, mitigate and remediate, harmful effects of company’s operations on the environment.

- Sustainable Development Policy - to ensure that Company businesses, projects, operations and products are developed and implemented in line with company’s commitment to sustainable development.

- Human Rights Policy – to support and protect human rights consistent with the Universal Declaration of Human Rights throughout the world where company has business.

- Non-political Activity Policy - to ensure that businesses do not directly or indirectly participate in party politics, nor make payments to political parties or individual politicians.

- Consumer Policy - to build enduring relationships with the consumer that we do business, production and sales, that are characterized by mutual respect, proactive engagement and long term commitment. Throughout the life cycle of the company’s activities by coordinating economic, technical, environmental and social factors in an integrated process.

- Community Policy - to build enduring relationships with the community that we do business, production and sales, that are characterised by mutual respect, proactive engagement and long term commitment. Throughout the life cycle of the company’s activities by coordinating economic, technical, environmental and social factors in an integrated process.

- Equity and Debt Investor engagement Policy, relating to social, environmental ethical, regulatory and governance responsibility issues.

- Philanthropic and Charity Contribution Policy to build the Board’s accountability for all authorized activities generating financial support on the organization’s behalf on fund-raising activities and voluntary activities.

Modus Operandi of the Board CSR Sub-committee

The CSR committee will receive regular reports on the implementation of the Company’s corporate policies from the respective heads of functional areas and from other executive managers as appropriate.

The CSR committee will consider periodically the future development of the issues covered by the Group’s Corporate Policies and any proposed changes to the Group’s policies and practices.

The CSR committee will monitor the quality, effectiveness and transparency of management processes; and the performance of corporate social and environmental responsibility work; and on the adequacy of any standards that may be set.

The CSR Committee will review and discuss the Company’s corporate social and environmental responsibility goals and initiatives in the context of the Company’s agreed overall business strategy, including impact of the initiatives, relationship to business goals and creation of shareholder value.

The CSR Committee ensures the alignment of senior management and the Boards endorsed CSR goals, strategies and polices. The Committee acts as a sounding board and provides guidance to the board and senior executives of the business. The committee provides external and independent oversight and guidance on the environmental and social impact of how Company conducts its business.

The CSR Committee chairman makes regular reports to the Board on matters it has reviewed. The CSR Committee will evaluate its performance annually. The Board will also make an annual assessment of the committee’s effectiveness. The CSR Committee’s Chairman shall be prepared to respond to any questions relating to the Committee’s activities at the Annual General Meeting of the Company’s Shareholders.

Social And Environmental Responsibility

To fulfil its responsibilities and duties the CSR Committee must:

1. Consider and review the social, environmental and ethical impact of Company’s activities and set standards for social, environmental and ethical practices.

2. Review initiatives to enhance Company’s sustainable business practices and reputation as a responsible corporate citizen.

3. Consider and endorse proposals from management and make recommendations to the Board on enhancements to Company’s corporate responsibility policies, principles and practices, and on major strategic initiatives to enhance Company’s reputation and sustainability.

4. Monitor, on a Group wide basis, compliance with Company’s published policies, practices and commitments in relation to social and environmental responsibility and sustainability, including occupational health and safety, relevant matters in Company’s supply chain and ethical policy relating to lending and investment activities.

5. Monitor and consider emerging social, environmental, reputation and other material business risks, and review the effectiveness of the company’s policies and systems for identifying and managing material business risks.

6. Monitor management’s strategic and operational response to climate change.

7. Review management’s progress in enhancing Company’s reputation with staff and in implementing sustainable business practices.

8. Monitor management performance in differentiating Company on the quality of customer experience and consumer protection policies.

9. Review and approve management’s annual and longer-term corporate responsibility planning and review and approve the annual Stakeholder Impact Report and other leading performance reporting.

10. Review annually the adequacy of this Charter and make recommendations on required changes to the Board for approval.

11. To the extent the Committee deems necessary, retain independent legal, accounting or other advisors. Operational responsibility for managing these matters lies with the senior management appointed for this purpose of each operating unit. The Head of each unit should have a co-ordinating role in areas of CSR to improve the sharing of best practice, collection of data and consistency of reporting.

Conclusion

In conclusion a few thought provoking questions:

How does your Board of Directors and Senior Management Teams current response to CSR?

Does the Board have a decision support process to gather information into meaningful Board papers for strategic and investment decisions?

Does your company reluctantly achieve compliance or is the company’s heart and motivated employees in the social and environmental plan?

Do you understand what your competitors are doing?

Do you know how your institutional investors and bankers evaluates your social, environmental and governance track record?

Do you know the impact on customer loyalty your social and environmental track record is having?

Do you know what the licensing body thinks about your industry and social development track record for license renewal and new license reward?

END

Note 1: Research of Boardroom perspectives on CSR & sustainable wealth based upon January 2008 survey by Qualvin Advisory Pte Ltd of Singapore and Malaysia listed companies.

Note 2: Research of Global Company CSR & Sustainability practices based upon 2007 public disclosures by Qualvin Advisory Pte Ltd

Author:
Qualvin Advisory
www.qualvin.com