CSR Gives Companies a Competitive Edge

This is a translation of an interview for Capital newspaper in Armenia, conducted when I was recently there delivering training (hosted by the UNDP/Global Compact, British Council and Eurasia Partnership Foundation) on CSR and Marketing. The interviewer was Habeth Madoyan.

Question: Mr. Visser, it is no secret that labour is cheaper in developing countries than in the developed world. Developing countries have weaker legislation on environmental issues, which gives them a kind of competitive edge in attracting foreign investment. Wouldn’t the promotion of CSR in a developing country deprive it of this edge?

Developing countries do have advantages as far as labour is concerned. To some extent, business and capital will go to those places where costs are less or standards are lower. That is why we need a system of CSR standards.

An interesting piece of research on Responsible Competitiveness, which covers 108 countries, has been published. This research shows that those countries where CSR is embedded in business and the government, and is also reflected in civil society, have a greater competitive advantage. In these cases, the link between responsibility and competitive advantages is always obvious.

So if developing countries have advantages based on lower costs, but do not have responsibility, then over time they will inevitably lose their competitiveness.

I think that, over the short term, it is possible to have economic growth without taking standards into consideration. But today, the CSR sector is seeing the integration into business of standards on quality, environmental issues and work conditions. So it is possible to sell a bad quality product at a cheap price and get to economic growth that way. But that is not a long term solution, because it leads to only short term economic growth.

After all, developed countries need more products of good quality. Their demand for responsible and ethical goods is constantly increasing.

Question: How should CSR standards and principles be introduced to developing countries?

The first path is through multi-national companies. In developing countries, they often use the same CSR principles and standards which are part of their operations at headquarters. This leads to the introduction of responsibility from developed countries to the developing world.

I think there is some pressure from the governments of developing countries too. China, for example, is saying that if the world wants it to become more responsible, then the world has to transfer the knowledge and technology necessary for this, preferably for free.

Today there is an interesting tension between the developed and developing world especially around the issue of climate change. The West has no moral right to tell developing countries that they cannot develop and grow or produce more and copy that which they have done. The West has no moral right to do this because it has already been on that path.

If the West is asking developing countries to adopt a new model of development and to produce cleaner, socially responsible and ethical products, then it should be ready to help them financially, through training and providing technology. Only through this kind of support does the West gain the right to demand a new model of development.

Question: How can one find the middle path between CSR and profit maximisation?

It is quite difficult to find the point of perfect balance between these two. Developing countries often find themselves faced with this problem. But it is necessary to seek and find the opportunities which allow cost reduction through steps aiming at environmental management. These are new business solutions that everyone is looking for today.

But in order to find these business solutions, it is important to have a strong system of governance, a well established civil society as well as pressure from the international community. In these cases, avoiding environmental issues could end up being more costly for companies.

One has to ask a simple question – what costs will I be facing ten years from now, if I avoid solving environmental issues today?

Economists have calculated that the money spent on climate change issues today could account for only about 1% of the world’s GDP. But if we leave avoid those issues now, then the costs could come to 20% of global GDP. This is the logic that we need to explain to our business community – by avoiding these expenses now you face much larger costs over a long term.

A few developing countries are bringing forward the concept of “environmental justice”, i.e. they are linking social issues to those of the environment. Their governments are coming up with legislation which encourages companies not only to spend on social issues. They demand that companies implement environmental programmes as well.

After all, it is the poorest layers of society that bear most of the ill effects of a polluted environment and it would be only fair for companies to deal with environmental issues as well.

Question: In our country, there are cases when companies are very active in philanthropy. Many people think that this is a “cheap” marketing ploy. How can one differentiate between them and draw the line between Marketing/PR and charity?

One first needs to understand the concept of strategic philanthropy. This is the theory of American academic Michael Porter. He says that companies should be involved with the philanthropy that deals with their area of business directly.

When a company works in agriculture, its philanthropy could be linked to food security issues. When that company is Coca-Cola, then its philanthropic work should involve water issues. In those cases, it is less likely that philanthropy will be used as a PR or marketing tool, because in reality it helps the business itself.

Corporate Social Responsibility is a much broader concept.

CSR is not about how a company spends the money it makes, but rather about how it makes that money. The weaker the link between CSR and the company’s main business, the higher the probability that it is being used for PR or marketing purposes.

There are a number of initiatives in the CSR industry that help us avoid these issues. One of these is the Global Reporting Initiative and its Sustainability Reporting Guidelines. These are very similar in nature to accounting standards. Accounting methods and standards are similar for all companies.

Through these, companies present their social activities, such that society also gets a chance to see and evaluate them. This would make it difficult for companies to use CSR as a PR or marketing tool.

Question: In your opinion, how will the global economic crisis affect CSR? Should we expect companies to lower their standards?

I think this question is linked to the last one. Those companies which are dealing only in philanthropy will suffer during the economic crisis. In these cases, philanthropic activity will lessen. Those companies which have strategic CSR will be less likely to reduce costs.

Coca-Cola will not be inclined to reduce its expenditure on water issues. They know that if the water situation worsens, the company would have serious problems.

Some time ago, that company had faced a conflict situation in India. They were accused of wasting water reserves there. It was not true, but that was the impression that people had there.

Coca-Cola is a huge consumer of water and, according to the people, they were responsible for water issues. That led to the problems for their brand reputation. But I don’t think that the crisis will affect the standards of those companies which have strategic CSR and ethical operations in any way; that is their way of working.

On the other hand, I think that a lot depends on the stage at which CSR is in a specific company. We may begin to see a tendency where companies that have well developed CSR gain additional competitive advantages in times of crisis.

That is natural – they have implemented a number of social programmes and so have a greater share of the public’s trust, which means better conditions of business for them.

The CSR Media Boom: We Got What We Deserve

Having just spent a morning reading the latest issue of Time magazine (one of my favourite mags, when I get a chance to read it), it really got me thinking about how far the world has moved since I started out in my CSR/sustainability career nearly 20 years ago.

20 years ago, finding credible media coverage on environmental or social responsibility was like hunting for a needle in a haystack. Now CSR/sustainability issues are the haystack. For example, in this week's Time, there are stories on:

• The President of the Maldives and his Cabinet holding an underwater meeting to urge UN leaders to pass climate change legislation in Copenhagen in December
• California's "new gold rush", namely its scramble to be the world's clean-tech leaders, making the state "America's future"
• Research showing how the least healthy cereals do the most marketing, i.e. questioning the ethics of advertising & greenwash
• How jellyfish are taking over in overfished, fertilizer polluted areas of the sea and "shifting from a fish to a jellyfish ocean"
• How China is fast becoming the world's largest alternative energy markets - including hydro, solar and wind power.
• Booming barter schemes - including the Barter Card - that allow cashless exchange during the recession (a movement long advocated by so-called "new economics" types)
• And how "our obsession with gross domestic product is unhealthy - and misleading" (another pillar of the new economics and sustainability movements)

I remember Stuart Hart, Chair in Sustainable Global Enterprise at Cornell and author of "Capitalism at the Crossroads", joking with me last year that "we got what we deserved", meaning that we were crying for change all those years, and now we have so much that it's hard to keep pace.

That's true. My inbox is awash with daily CSR & sustainability stories - no longer tucked away in specialist publications, but making headlines on the front pages of the world's conservative business and news press. Quite simply, the social and environmental challenges - and solutions - have become so dramatic that "green is the new black", so to speak.

Now the challenge for those of us working in the R&S (responsibility and sustainability) space is to separate the wheat from the chaff. Which issues being reported are noise and which are genuine breakthroughs? Which solutions are peripheral chatter and which are scalable game-changers?

Whichever way you look at it, this is an exciting time to be in the thick of the R&S revolution. It's a privilege to be part of making a real difference in the world - at a time when nothing less will do. And yes, Stu, it's what we deserve, in more ways than one.

CSR for SMEs: Lessons from Mexico

In a country where more than 95% of businesses are micro-enterprises, how do you make CSR relevant? Well, you start by replacing the corporate C with an enterprising E. In Mexico, as in all of Latin America, CSR translates as RSE - Responsabilidad Social Empresarial, or Social Responsibility for Enterprises.

You also figure out how to turn social, environmental and ethical responsibilities into a business model, rather than a peripheral add-on. This is what the IDEARSE Centre for Enterprise Sustainability & Responsibility at Anauhuac University has done, as part of the government's SME Accelerator programme (Aceleradora de Negocios IDEA-Anáhuac).

I had the chance to learn more about this pioneering programme at the 7th International CSR Conference in Mexico City on 9 October 2009, hosted by COMPITE in partnership with IDEARSE, among others, where I was delivering the keynote address on "The Future of CSR".

The IDEARSE Acceleration Business Model - which strives to support businesses growth through a CSR business administration model that develops competitive advantage - is based on 6 principles: Self regulation (governance), human rights, stakeholder engagement, labour responsibility, environment (eco-efficiency) and social & community impact.

Working with this framework, IDEARSE takes SMEs through an 18 month process of establishing baseline performance, completing a CSR diagnostic, doing a gap analysis, coming up with an action plan, executing it, establishing a new baseline, evaluating impacts and writing up the case study. To date, 76 SMEs have been taken through the process.

What is the result? SMEs that scored an average of 23% on IDEARSE's comprehensive CSR diagnostic before the intervention almost doubled their CSR performance to 43%. Some of the biggest improvements were on self regulation/governance (17% to 48%), process improvement (26% to 47%) and stakeholder engagement (32% to 52%).

Importantly, improvements also show up on the bottom line. The SMEs in the Acceleration programme showed a 30% annual sales growth, and 19% growth in employment, creating 675 new jobs (pre-financial crisis). This is an iterative model, so once the first round of actions have been implemented, the cycle is repeated, leading to continuous improvement.

In developed countries, we have become arrogant about being leaders in CSR. But I believe that many of the most interesting and important innovations - like the IDEARSE Business Acceleration Model - are happening in developing countries. To give another example, Mexico is one of the only countries I know that has a national certifiable CSR standard.

It is time to recognise that CSR is no longer a standardised, Western concept. It has globalised, and as it has done so, it has diversified to meet the needs of the countries, cultures and communities where it finds itself. This is good news. We must hang onto universal CSR principles, but learn to let go of any pre-conceived ideas of what CSR must look like in practice. For to really change the world, CSR first has to become a grassroots movement.

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For more information about the IDEARSE Business Acceleration Model, contact Jorge Reyes-Iturbide on jreyes@anahuac.mx.

Worth more alive than dead: Our biodiversity challenge - Part 2

In essence, what we need is the equivalent of "The Stern Review on the Economics of Climate Change", for biodiversity. And happily, that is exactly what we are getting. TEEB - The Economics of Ecosystems and Biodiversity - is working to put a cost on the loss of ecosystem services and biodiversity loss, and to recommend policy actions.

What TEEB needs to prove - much like the Stern Review - is that the cost of inaction is not only real, but also enormous. Fortunately, this argument is getting a boost from the crescendo on climate change. And more specifically, the links between deforestation and climate change. Tropic deforestation accounts for about 20% of annual greenhouse gas emissions.

So the challenge becomes, how do we make forests worth more alive than dead? The answer, championed by Brazilian Congressman Marcio Santilli, is "compensated reduction". In other words, paying developing countries not to chop down their forests. Thankfully, this idea is starting to gain political traction. It is a win-win on climate and biodiversity.

And it is people like Sino-Australian Dorjee Sun that are showing us how to turn a good idea into a practical reality. 32-year old Sun - a dot.com millionaire by age 30 - now runs Carbon Conservation, which brokers rain-forest-carbon-credit deals. In 2008, he brokered the world's first commercial deforestation-avoidance project, with Merill Lynch paying to protect 1.9 million acres of Indonesian jungle, for credits that it will trade on the international carbon markets.

We all know that we can't - nor would we want to - put a price on everything. But the sad fact is that unless we put a price on biodiversity and ecosystem services - our very life support system - we are in danger of self-destruction. There is an African saying, "the revolution will eat its children". Let's make sure the "market revolution" does not devour our natural inheritance.

Worth more alive than dead: Our biodiversity challenge - Part 1

One of my enduring critiques of the CSR movement is that it has failed to have a dramatic impact on some of the biggest global challenges we face. Despite all the CSR reports and ISO management systems, many things are getting worse, not better. This is indisputable when it comes to biodiversity loss. It is not exaggerating to say that we are causing the sixth mass extinction in the history of planet earth.

I always have to pinch myself when I present figures on this - WWF's Living Planet Index, which tracks populations of 1,313 vertebrate species, has gone down 30% since 1970. Just think about that. We have lost a third of the world's vertebrates in just one generation! According to the Millennium Ecosystem Assessment, 60% of our ecosystems are degraded.

The reason is that nature - as it is currently measured and valued - is worth more dead than alive. Which of course makes no sense at all. It's what Herman Daly and John Cobb Jr, in their book "For the Common Good", call "when to kill the goose that lays the golden egg". We have known for a long time that nature has an economic value, but it hasn't been factored into markets.

In 1997, a team led by environmental economist Robert Costanza estimated the economic value of 12 ecosystem services to be $33 trillion, nearly double world GNP at the time. And yet these same services (and many others) are given a value of zero, by default, in most of our economic and investment decisions. It is true they are free, but only while they continue to function.

When the bee colonies started collapsing in the United States in 2007, the 'free service' of pollination suddenly started to look frightfully expensive - approximately $14.6 billion a year more expensive, according to some estimates. What we need, therefore, is a game-changer. Something to radically alter the debate, to change the way we think about biodiversity.

The Three Curses of CSR: Curse 3 - Uneconomic Role

Curse 3: Uneconomic CSR

If there was ever a monotonously repetitive, stuck record in CSR debates, it is the one about the so-called ‘business case’ for CSR.

That is because CSR managers and consultants, and even the occasional saintly CEO, are desperate to find compelling evidence that ‘doing good is good for business’, i.e. CSR pays! And indeed, the lack of sympathetic research seems to be no impediment for these desperados endlessly incanting the motto of the business case, as if it were an entirely self-evident fact.

The rather more ‘inconvenient truth’ is that CSR sometimes pays, in specific circumstances, but more often does not. Of course there are low-hanging fruit – like eco-efficiencies around waste and energy – but these only go so far.

Most of the hard-core CSR changes that are needed to reverse the misery of poverty and the sixth mass extinction of species currently underway require strategic change and massive investment. They may very well be lucrative in the long term, economically rational over a generation or two, but we have already established that the financial markets don’t work like that; at least, not yet.

The Three Curses of CSR: Curse 2 - Peripheral Status

Curse 2: Peripheral CSR

Ask any CSR manager what their greatest frustration is and they will tell you: lack of top management commitment. This is ‘code-speak’ for saying that CSR is, at best, a peripheral function in most companies.

There may be a CSR manager, a CSR department even, a CSR report and a public commitment to any number of CSR codes and standards. But these do little to mask the underlying truth that shareholder-driven capitalism is rampant and its obsession with short-term financial measures of progress is contradictory in almost every way to the long-term, stakeholder approach needed for high-impact CSR.

The reason Enron collapsed, and indeed why our current financial crisis was allowed to spiral out of control, was not because of a few rogue executives or creative accounting practices, it was because of a culture of greed embedded in the DNA of the company and the financial markets.

Joel Baken (author of The Corporation) goes so far as to suggest that companies are legally bound to act like psychopaths. Whether you agree or not (and despite the emerging research on ‘responsible competitiveness’), it is hard to find any substantive examples in which the financial markets reward responsible behaviour.