Tag Archives: Corporate Social Responsibility

Creating Shared Value: Doing well by doing good!

Relevant research has shown that those companies that had undertaken social and environmental responsibility did prosper in the long run (McWilliams and Siegel, 2001; Orlitzky, 2003). However, other research has indicated that it is also possible to over-spend on strategic CSR — as this is true of all discretionary marketing expenditures (Lantos, 2001). It may appear that there is an optimal level of spending on strategic CSR (Orlitzky et al. 2010). The factors contributing towards creating value are often qualitative and may prove very difficult to measure and quantify, such as; employee morale, corporate image, reputation, public relations, goodwill, and popular opinion (Miller and Ahrens, 1993). Lantos (2001) advocated the need to identify CSR activities that will yield the highest payback. Of course, every stakeholder group has its own needs and wants. Therefore is is important to continuously balance conflicting stakeholder interests and measure the returns from strategic CSR investments (McWilliams and Siegel, 2011; Freeman, 1984).

Porter and Kramer (2006) believed that organisations can set an affirmative CSR agenda that produce maximum social benefits and gains for the businesses themself, rather than merely acting on well intentioned impulses or by reacting on outside pressures. They referred to the value chain (Porter, 1986) as an appropriate tool to chart all the social consequences of business activities. Figure 1 illustrates inside-out linkages that range from hiring and layoff policies to green house gas emissions, as follows.

Figure 1. Porter’s Value Chain
value chain
(Source: Porter, 1985, reproduced in Tsai et al. 2010)

This value chain model presents operational issues which have an effect on the companies’ performance. It depicts some of the activities a company engages in while doing business. This model can be used as a framework to identify the positive and negative social impacts of those activities. Porter and Kramer (2006) held that through strategic CSR the company will make a significant impact in the community.They suggested that companies may be triggered to doing things differently from competitors, in a way where they could lower their costs. The authors went on to say that strategic CSR involve both inside-out and outside-in dimensions, working in tandem. Interestingly, the authors indicated that there are ‘shared value’ opportunities through strategic CSR (Porter and Kramer, 2006, 2011). They argued that the companies’ may strengthen their competitiveness by investing in social and environmental aspects, as featured in Figure 2.

Figure 2. Corporate Involvement: A Strategic Approach
Figure 2
(Source: Porter and Kramer, 2006)

The success of the company and of the community may become mutually reinforcing (Porter and Kramer, 2006). They maintained that the more closely tied a social issue is to the companies’ business, the greater the opportunity to leverage the firms’ resources and capabilities and will in turn benefit society at large. Falck and Heblich (2007) related the notion of strategic CSR to the shareholder value theory. This approach implied a long term view of wealth maximisation. As it was also the case for the agency theory. These authors suggested that proper incentives may encourage managers ‘to do well by doing good’.

“…as the company’s goal was to survive and prosper, it can do nothing better than to take a long term view and understand that if it treats society well, society will return the favour” (Falck and Heblich, 2007).

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Environmental, Social and Governance Disclosures in Europe

Excerpt from: Camilleri, M. (2015). Environmental, social and governance disclosures in Europe. Sustainability Accounting, Management and Policy Journal, 6(2). http://www.emeraldinsight.com/doi/abs/10.1108/SAMPJ-10-2014-0065

 

Last year, the European Union (EU) announced its new guidelines on non-financial reporting that will only apply to some large entities with more than 500 employees. This includes listed companies as well as some unlisted companies; such as banks, insurance companies and other companies that are so designated by member states; because of their activities, size or number of employees. There are approximately 6,000 large companies and groups within the EU bloc (EU, 2014).  The most prevalent reporting schemes in the EU were often drawn from; the G3 Guidelines of the Global Reporting Initiative (GRI) and the United Nations Global Compact (UNGC). In addition, several platforms and organisations that promote corporate sustainability reporting have developed partnerships with AccountAbility, OECD, UNEP, Carbon Disclosure Project and with many governments and sector organisations (Van Wensen et al., 2011; Kolk, Levy & Pinkse, 2008).

 

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When one explores the key topics that companies reported on, it transpired that carbon emission disclosures have become quite a common practice (Kolk et al., 2008). Moreover, recently there was an increased awareness on the subject of human rights and the conditions of employment (Lund-Thomsen & Lindgreen, 2013). Curiously, online reporting has offered an opportunity for accountability and transparency as information is easily disseminated to different stakeholders (Zadek, Evans & Pruzan, 2013). This has inevitably led to increased stakeholder engagement, integrated reporting and enhanced external verification systems. This subject has also been reported by Simnett and Huggins (2015), who have also presented a number of interesting research questions which could possibly be addressed through engagement research. At this point in time, stakeholders are considering reporting schemes as a valuable tool that can improve the quality of their reporting, particularly as it enables them to benchmark themselves with other companies (Adams, Muir & Hoque, 2014). The GRI is often regarded as ‘a good starting point’ for this purpose. Moreover, the provision of a UNGC communication on progress is a new global trend that has become quite popular among business and non-profit organisations. Some of the European organisations are gradually disclosing environmental information or certain other key performance indicators that are of a non-financial nature in their reporting (Zadek et al., 2013). Generally, public policies are often viewed as part of the regular framework for social and employment practices. Therefore, a considerable commitment is made by local governments who act as drivers for stakeholder engagement (Albareda, Lozano, Tencati, Middtun & Perrini, 2008).

 

One way to establish a CSR-supporting policy framework is to adopt relevant strategies and actions in this regard. Such frameworks may be relevant for those countries that may not have a long CSR tradition or whose institutions lack accountability and transparency credentials (Zadek et al., 2013). It may appear that EU countries are opting for a mix of voluntary and mandatory measures to improve their ESG disclosure. While all member states have implemented the EU Modernisation Directive, they have done so in different ways. While the Modernisation Directive ensured a minimum level of disclosure, it was in many cases accompanied by intelligent substantive legislation. National governments ought to give guidance or other instruments that support improvements in sustainability reporting. Lately, there was a trend towards the development of regulations that integrate existing international reporting frameworks such as the GRI or the UNGC Communication on Progress. These frameworks require the engagement of relevant stakeholders in order to foster a constructive environment that brings continuous improvements in ESG disclosures. Regular stakeholder engagement as well as strategic communications can bring more responsible organisational behaviours (Camilleri, 2015). Many corporate businesses use non-governmental organisations’ regulatory tools, processes and performance-oriented standards with a focus on issues such as labour standards, human rights, environmental protection, corporate governance and the like. Nowadays, stakeholders, particularly customers expect greater disclosures, accountability and transparency in corporate reports.

 

At the moment, we are witnessing regulatory pressures for mandatory changes in CSR reporting. Of course, firms may respond differently to reporting regulations as there are diverse contexts and realities. In a sense, this paper reiterates Adams et al.’s (2014) arguments as it indicated that ESG disclosures are a function of the level of congruence between the government departments’ regulatory environment and the use of voluntary performance measures. Somehow, EU regulatory pressures are responding to energy crises, human rights matters and are addressing the contentious issues such as resource deficiencies including water shortages. Notwithstanding, big entities are also tackling social and economic issues (e.g. anti-corruption and bribery) as they are implementing certain environmental initiatives (e.g. waste reduction, alternative energy generation, energy and water conservation, environmental protection, sustainable transport et cetera). In this light, there are implications for practitioners and assurance providers of integrated reports, standard setters and regulators (Simnett & Huggins, 2015). Future engagement research can possibly consider how report content and reporting formats, might impact on organisations’ decision making (Correa and Larrinaga, 2015). This paper indicated that practice and policy issues would benefit from additional empirical evidence which analyse how the European disclosure regulations may positively or adversely affect the corporations’ stakeholders.

http://www.emeraldinsight.com/doi/abs/10.1108/SAMPJ-10-2014-0065

 

References

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Albareda, L., Lozano, J. M., Tencati, A., Midttun, A., & Perrini, F. (2008). The changing role of governments in corporate social responsibility: drivers and responses. Business Ethics: A European Review, 17(4), 347-363.

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Copenhagen Business School Public policy on CSR reporting: Danish experiences and other observations.https://www.globalreporting.org/SiteCollectionDocuments/Global-Conference-2013/slides/GRI-Academic-Public-Policy-TRJ-23May2013.pdf accessed on the 5th February, 2015.

Correa, C., & Larrinaga, C. (2015). Engagement research in social and environmental accounting. Sustainability Accounting, Management and Policy Journal, 6(1).

CSR Compass (2014). Responsible supply chain management.
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Danish Business Authority, Copenhagen. http://www.ohchr.org/Documents/Issues/Business/NationalPlans/Denmark_NationalPlanBHR.pdf Accessed 30th September 2014.

DCCA (2010). Corporate Social Responsibility and Reporting in Denmark. Danish Commerce and Companies Agency.
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DCGC (2014). Dutch Corporate Governance Code: Principles of good corporate governance and best practice provisions.
http://commissiecorporategovernance.nl/download/?id=606 Accessed on the 2nd October, 2014.

DECC (2014). UK National Energy Efficiency Action Plan. Department of Energy and Climate Change.
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ECCJ (2014). Assessment of the EU Directive on the disclosure of non-financial information by certain large companies. http://business-humanrights.org/sites/default/files/media/documents/eccj-assessment-eu-non-financial-reporting-may-2104.pdf Accesses on the 3rd January 2015.

EU (2002). Corporate Social Responsibility: A business contribution to Sustainable Development. COM(2002) 347 final. Commission of the European Communities, Brussels.

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EU (2011). A renewed EU strategy 2011-14 for Corporate Social Responsibility.
http://ec.europa.eu/enterprise/newsroom/cf/_getdocument.cfm?doc_id=701 Accessed 3rd February 2014.

EU (2012a). Sustainable and responsible business European Expert Group on corporate social responsibility (CSR) and SMEs.
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EU (2012b). Energy Efficient Directive. http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32012L0027 Accessed on the 5th January 2015.

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EU (2014b). Non-Financial Reporting.
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EU (2014c). European Pollutant Release and Transfer Register (PRTR). http://europa.eu/legislation_summaries/environment/general_provisions/l28149_en.htm Accessed 29th August, 2014.

EU ETS (2014). EU Emission Trading Scheme. http://ec.europa.eu/clima/policies/ets/index_en.htm Accessed on the 10th January 2015.
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FRC (2012). The UK Corporate Governance Code. Financial Reporting Council. https://www.frc.org.uk/Our-Work/Publications/Corporate-Governance/UK-Corporate-Governance-Code-September-2012.aspx Accessed 3rd October, 2014.

Gov.UK, “The UK is the first country to make it compulsory for companies to include emissions data for their entire organisation in their annual reports,” June 20, 2012, https://www.gov.uk/government/news/leading-businesses-to-disclose-greenhouse-gas-emissions.

Hąbek, P. & Wolniak, R. (2013). European Union regulatory requirements relating to Sustainability Reporting: The case of Sweden. Scientific Journals Maritime University of Szczecin, Zeszyty Naukowe Akademia Morska w Szczecinie.

Hartmann, F., Perego, P., & Young, A. (2013). Carbon Accounting: Challenges for Research in Management Control and Performance Measurement. Abacus, 49(4), 539-563.

Ioannou, I. & Serafeim, G. (2014). The consequences of mandatory corporate sustainability reporting. Harvard Business School Research Working Paper 11-100.

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Kessler, A. & Cuerpo, C. (2011). Macroeconomic Impact of the Sustainable Economy Law. Documentos de Trabajo, 03.

Knopf, J., Kahlenborn, W., Hajduk, T., Weiss, D., Feil, M., Fiedler, R. & Klein, J. (2010). Corporate Social Responsibility National Public Policies in the European Union. EU Commission, Brussels.

Kolk, A., Levy, D., & Pinkse, J. (2008). Corporate responses in an emerging climate regime: the institutionalization and commensuration of carbon disclosure. European Accounting Review, 17(4), 719-745.

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KPMG (2010). Carrots and Sticks – Promoting Transparency and Sustainability. An update on trends in Voluntary and Mandatory Approaches to Sustainability Reporting.

KPMG in collaboration with United Nations Environment Programme and Global Reporting Initiative in Africa. https://www.globalreporting.org/resourcelibrary/Carrots-And-Sticks-Promoting-Transparency-And-Sustainbability.pdf Accessed 01st October, 2014.

Lund-Thomsen, P. & Lindgreen, A. (2013). Corporate Social Responsibility in Global Value Chains: Where Are We Now and Where Are We Going?”. Journal of Business Ethics, 1-12.

Martinuzzi, A., Krumay, B. & Pisano, U. (2011). Focus CSR: The New Communication of the EU Commission on CSR and National CSR Strategies and Action Plans. European Sustainable Development Network (ESDN), Quarterly Report No, 23.

Mullerat, R. (2013). Corporate social responsibility: a European perspective. Jean Monnet/Robert Schuman Paper Series Vol. 13 No. 6, June 2013.

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Europe’s Energy Efficiency Targets

euThe European Union’s (EU) Member States are required to draft National Energy Efficiency Plans (NEEAPs) that report on adopted measures (or planned to be adopted) to implement the main elements of the Energy Efficiency Directive (EED, 2012/27/EU). All EU countries are required to achieve a certain amount of final energy savings over the period (01 January 2014 – 31 December 2020) by using energy efficiency obligations schemes or other targeted policy measures to drive energy efficiency improvements in households, industries and transport sectors. The Energy Efficiency Directive (EED) entered into force on the 4th December 2012 in order to establish a common framework of measures for energy efficiency within the EU. EED laid down specific rules to remove barriers in the energy market and to overcome certain market failures that impede energy efficiency. It also provides for the establishment of indicative national energy efficiency targets for 2020. All the EU-28 countries are urged to use energy more efficiently at all stages of the energy chain – from the transformation of energy, through its distribution until its final consumption.

EED measures may also translate to significant energy savings for consumers. For instance, this directive proposed that consumers ought to access easy and free-of-charge data on their real-time (and historical) energy consumption to enable them to monitor their energy consumption patterns. Moreover, this directive also recommended that large enterprises should carry out an energy audit at least every four years, with the first energy assessment should be held before the 5th December 2015. It also suggested that SMEs could be incentivised to undergo energy audits to help them identify the potential for reduced energy consumption. As from the 1st January 2014, the directive advised the public sector to lead by example by renovating 3% of the buildings owned and occupied by the central governments and by including energy efficiency considerations in public procurement. EED has even set realistic deadlines for further improvements in energy efficiencies in energy generation, the monitoring of efficiency levels of new energy generation capacities, national assessments for co-generation and district heating potential and measures.

It goes without saying that the requirements laid down in the EED directive are minimum requirements that do not prevent any Member State from maintaining or introducing more stringent measures. As from 2013, every member state have to report on the progress achieved towards national energy efficiency targets in accordance with Part 1 of Annex XIV.

Links:

EU (2012) DIRECTIVE on energy efficiency, amending Directives 2009/125/EC and 2010/30/EU and repealing Directives 2004/8/EC and 2006/32/EC

http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32012L0027

 

 

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The EU’s directive on the disclosure of non-financial information

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On the 29th September 2014, the European Council has introduced amendments to Accounting Directive (2013/34/EU) that mandates corporate business to disclose their non-financial performance. The EU Commission proposed non-binding guidelines on the details of what non-financial information ought to be disclosed by big businesses operating from by EU countries. This legislation respects environmental, human rights, anti-corruption and bribery matters as expressed in the UN Guiding Principles on Business and Human Rights (the “Ruggie Principles”) and OECD’s Guidelines for Multinational Enterprises (ECCJ, 2014).

This recent EU directive has marked a step forward towards the hardening of human rights obligations for large “public interest entities” with more than 500 employees. At the moment there are approximately 6,000 large undertakings and groups across the EU. Public interest entities include all the undertakings that are listed on an EU stock exchange, as well as some credit institutions, insurance undertakings and other businesses so designated by Member States.

In a nutshell, these non-financial disclosures should shed light on the corporate businesses’ social and environmentally responsible policies and practices. They will feature a brief description of the undertaking’s business model, including their due diligence processes resulting from their impact of their operations. This EU directive encourages corporates to use relevant non-financial key performance indicators on environmental matters including; greenhouse gas emissions, water and air pollution, the use of (non) renewable energy and on health and safety.

With regards to social and employee related matters, the corporate firms ought to implement ILO conventions that promote fair working conditions for employees. The corporate disclosure of non-financial information can include topics such as; social dialogue with stakeholders, information and consultation rights, trade union rights, health and safety and gender equality among other issues. Businesses should also explain how they are preventing human rights abuses and/or fighting corruption and bribery.

Through this directive the EU commission emphasises materiality and transparency in non financial reporting. It also brought up the subject of diversity at the corporate board levels. It has outlined specific reference criteria that may foster wider diversity in the composition of boards (e.g. age, gender, educational and professional background). The EU Commission has even suggested that this transparency requirement complements the draft directive about women on boards.

This new directive still allows a certain degree of flexibility in the disclosures’ requirements. As a matter of fact, it does not require undertakings to have policies covering all CSR matters. Yet, businesses need to provide a clear and reasoned explanation for not complying with this directive. Therefore, non-financial disclosures do not necessarily require comprehensive reporting on CSR matters (although this is encouraged by the Commission), but only the disclosure of information on policies, outcomes and risks (ECCJ, 2014). Moreover, this directive gives undertakings the option to rely on international, European or national frameworks (eg. the UN Global Compact, ISO 26000) in the light of the undertaking’s characteristics and business environment.

It is envisaged that the first CSR reports will be published in financial year 2017 (ECCJ, 2014).

Links:

http://ec.europa.eu/finance/accounting/non-financial_reporting/index_en.htm

http://business-humanrights.org/sites/default/files/media/documents/eccj-assessment-eu-non-financial-reporting-may-2104.pdf

http://europa.eu/rapid/press-release_MEMO-14-301_en.htm?locale=en
 

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