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Benefits of CSR
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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.
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viable basics of a relationship, that faith has been replaced by a desire to see companies acting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”
“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 BP-
Amoco, 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.
"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
“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 mid-
90’ 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.
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.
“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
“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?”
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.”
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.
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
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
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
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
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.
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:
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
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.
“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
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”.
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.
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.
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.
• 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.
Increase market opportunities through stimulating innovation and attracting new clients.
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.
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.
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.
Source: P.Christman, Academy of Management Journal, 2000 Vol. 43, no. 4, 663-680
"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
New Technology
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.
“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.
“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
“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
“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
“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.
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:
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
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.
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.
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.
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.
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.
Sound CSR practices help companies attract and retain quality investors and business partners.
The benefits can be classified in four broader categories:
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.
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
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.
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.
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.
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.
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.
“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.”
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.
“…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.
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.
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.
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.
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.
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.
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.”
“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
“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.
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.”
“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
“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.”
“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
“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….”
“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
“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….”
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.
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.
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.
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
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
“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.
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
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
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
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.
o 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.
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.
Source: Meghan Voorhes; Director, Social Issues Service, Investor Responsibility Research
Center
http://www.multinationalguidelines.org/oecd/Documents/voorhesspeech.htm
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
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.
o Innovest Strategic Value Advisors asserts that eco-conscious companies outperform the
S&P500 by 2.8% per annum average.
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