Edmonds Management 2005 Sustainability Series: 'Doing sustainability: moving from why to how': Sydney, 3 May 2005.

The rise of the Corporate Social Responsibility (CSR) movement over the past decade has coincided with increasing criticisms of free market business models--with corporations focusing exclusively on maximising profit and delivering value to shareholders having increasingly short life spans. Such corporations have been likened to viruses that inevitably kill off their hosts, by not looking after the conditions that ensure survival and health. An alternative, the critics argue, is to encourage and report on, corporate activities that benefit not only shareholders, but also the communities in which such corporations operate and the environment that supplies corporate resources.

One of a series of annual one-day conferences offered by Edmonds Management, 'Doing Sustainability: Moving from Why to How' preached to an apparently converted audience of 180. Judging from their positions on the participants' list, attendees' responsibilities were primarily corporate affairs, branding, community relations and related roles. Many large Australian companies and organisations, perhaps keen to retain or retrieve their icon status, sent attendees, including Shell, AGL, CSIRO, Westpac, AMP, Boral, Medibank, National Australia Bank, Hardy Wine and Lion Nathan.

There were also a number of business development managers possibly researching new opportunities from major management consulting firms like KPMG, Ernst & Young and legal firms like Freehills. Does this turnout suggest that CSR and Triple Bottom Line (TBL) reporting and analysis has become the latest brand management fad? Not entirely. City Councils were also well represented, as were major environmental groups like Clean Up Australia and the World Wildlife Fund whose brand positioning around environment protection has never wavered.

Selected presentations are summarised below but these are not complete. Perspectives have been selected for reporting that represent financial, government, business, and Australian viewpoints on the benefits of, and challenges to, implementing CSR.

SETTING THE SCENE: DEVELOPMENTS IN CSR

The conference's keynote speaker, John Elkington, is one of the earliest architects and proponents of CSR. He has successfully worked with innovative firms like Body Shop in the UK to report in the 1990s on the social and environmental impacts of their business operations as well as their financial results. CSR harks back to a venerable history that has its origins in the 1960's Club of Rome Report on Limits to Growth and Schumaker's Small is Beautiful, which argued that modern society's emphasis on growth and increasing levels of consumption was unsustainable for a small ecosystem like Planet Earth.

Elkington described the decade-long evolution of CSR in terms of 'waves of interest'. The first wave focused on impact on the environment, the second on attempt to convince consumers to 'buy green'. Only around 1998 did a serious effort to incorporate TBL reporting emerge in corporate annual reports. The current spike of interest, according to Elkington, has come about as a result of some of the negative impacts of globalisation. Efforts to embed and professionalise CSR as an element of standard corporate governance good practice have moved away from the TBL of the 1990s. This is because experience with TBL reporting has encouraged companies to initiate, and report on, corporate contributions organised by Economic, Environmental and Social silos, some of which have been artificial add-ons to corporate strategy.

CSR experts have as a result attempted to identify audit and reporting frameworks that position CSR initiates at the heart of corporate strategy. Elkington mentioned a number of helpful government initiatives, primarily from the European Union, including removal or redesign of some government subsidies which encourage detrimental environment practices, mandatory reporting on emission levels by companies, and legislation and enforcement that facilitate incorporation of CSR in mainstream corporate good practice. Driving CSR through a 'blended values' approach via informing Boards, Branding, and Business models' is thus at the top of the current CSR agenda, according to Elkington.

Globalisation drivers of CSR internationally, according to Elkington, include the impacts of the enlargement movement which is bringing emerging countries with different cultural and economic assumptions into the European Union. Another challenge is the rapid development of China, and a third is challenge of encouraging governments to take a more proactive role in health care, corruption reduction, weather and climate change, after an era of minimal government intervention.

Each speaker was asked to identity three priority issues they believed needed to be address in implementing CSR. Elkington's choices were 'Blended values' as opposed to silo initiatives; a focus on scalability and repeatability of initiatives, and motivating emerging markets to take up the CSR agenda.

To drive home the message the CSR should be a key component of corporate governments, Elkington presented a short interview with Standard and Poor's Managing Director, George Dallas, via video from the US. Dallas pointed out that the Enron scandal did much to encourage greater transparency in corporate reporting. Standard and Poor's assessments of the economic viability of organisations was expanded to include a TBL-style focus on how well the interests of non-financial stakeholder segments were served by corporations. In closing, he stressed the need for rigorous reporting mechanisms that avoided the appearance of 'green-washing' by companies.

Financial perspective

To explain how shareholder value has become some a dominant corporate value, Richard Murray, Chief Claims Strategist for the insurance giant, Swiss Re, presented an illuminating historical perspective on the recent phenomenon of the corporation as a profit machine.

Murray outlined the development of the corporation simply and concisely. In the 17th century, when owners, managers, and workers of enterprises, usually agricultural, lived in the same community, they shared a commitment to the community's survival. In the 18th century, the emergence of trades separated consumers from owners, managers, and workers, bringing into play for the first time the separation of stakeholders. In the 19th century, the Industrial Revolution created a divide between labour and managers and owners. However, it was in the 20th century that the creation of capital markets resulted in a dramatic separation of managers from owners, often placing a great distance between owners and the enterprises they owned. Capital was professionally managed to ensure corporate growth and profitability. The 21st century saw the emergence of mature, intermediated markets. Corporations were managed by investment funds; stakeholders were managed by managers. Control of corporate behaviour rested with investment fund managers, and Boards of Directors intermediated between managers and investment funds.

The results of this incremental creation of distance between enterprise entities is that, at present, owners are not responsible for decisionmaking; stakeholders are left to deal with management, who are not rewarded for dealing with stakeholders; Board of Directors are not capable of dealing with stakeholders, management and investment funds. So the simplest principle, shareholder value, dominates, in Murray's view.

However, within this system, he said, we have forgotten who the shareholders are. In fact, they are all the players in the corporate system, that is, us. And what, Murray asked, do they value? They value maximised funds when they need them, not all the time, and they do not value maximised profits for their own sake. If asked, most shareholders would like to know that profits they earned were earned honourably. Most shareholders do not like to think that their profits are earned at the expense of an organisation's survival.

Single-minded dedication to maximising profits all the time has resulted in a number of negative impacts on the environment, one of the most notable of which is climate change. Swiss Re's metrics showing payouts for property damage and loss as a result of natural catastrophes has escalated from US$5 billion a year in 1970, to US$15 billion a year in 2000, and amounted to a staggering $45 billion in 2004. Nor is the final payment figure the anomalous result of the Boxing Day tsunami. Insurance payouts go to individuals who buy policies. The average person in Sri Lanka spends $7 per year on insurance. The bulk of recorded payouts go to the developed world.

Murray pointed to the need to remove impediments to recognising climate change factors in market analyses. In his view, reporting on environmental challenges is underplayed by many staff members whose career development is dependent upon their recognition of opportunities, not risks.

Murray pointed to three priority issues associated with applying CSR to financial institutions: the first is that assessments and accounting for going concerns should shift their horizons to a minimum of ten years; the second is that concerns need to understand the hazards on the horizon; and the fourth is that concerns need to encourage development of competencies to identify and remedy hazards.

Government perspective