Ethical Corporation • December 2010-January 2011 Review of the year 11 TOM_WANG/DREAMSTIME.COM2010 Other events that attracted wide atten- tion and controversy during the yearA year dominated by macro trends included Cadbury’s acquisition by Kraft Foods, Google’s threat to leave China over censorship issues, and Vedanta Resources’ controversial plans to mine bauxite on tribalBy Rajesh Chhabara land in afforested area in Orissa, India.From Deepwater Horizon to ISO 26000, it’s been a year of big events Global supply chains had a few refreshing moments. Riding high on the he world entered 2010 with optimism as biggest corporate responsibility disaster of success of its sustainability initiative Plan A,T the global credit crisis had eased and theeconomic recovery was in sight. the year. BP executives have been accused of first neglecting the safety aspects in oper- the UK retailer Marks & Spencer announced an ambitious target to become However, the recovery in the US and ating the rig, then underplaying the the world’s most sustainable retailer byEurope has been sluggish; more of the potential damage caused by the spill and 2015. The company also added 80 newglobal economic power has rolled over acting slowly in plugging the leak. BP chief pledges to the previous 100 commitmentstowards China, India and a few other executive Tony Hayward lost his job for under Plan A and extended the programmerapidly developing countries; and inflation failing to contain the leak and then the to more than 2,000 suppliers and 10,000is planting new fears of bubbles forming in ensuing crisis. farmers.various pockets of the global economy. Also BP has lost reputation, and loads ofin the mix have been currency wars making money. On the New York Stock Exchange, Supply chains good and badmultinational companies reconfigure their BP shares dropped 52% in 50 days following Wal-Mart continued to up its sustainability UK retailer Marks & Spencerfinancial projections and countries mulling benchmarks by pledging to cut 20m tonnesnew measures to protect their markets. of carbon from its supply chain by 2015. Twelve months ago, corporate responsi- And Unilever announced its ambitious newbility commentators were obviously announced an ambitious target sustainability plans – Sustainable Living – inconservative in predicting their outlook for to become the world’s most November.the year. Companies recovering from reces- California’s new supply chain trans-sion were, it seemed, more likely to sustainable retailer by 2015 parency laws mean that any company withcontinue cutting budgets on corporate a turnover above $100m operating in theresponsibility initiatives. the spill, falling from $60.57 on April 20, to state will have to disclose its efforts to erad- But a couple of incidents may have $29.50 on June 9. The stock price has since icate forced labour in its supply chain. Thechanged the mood. First, the embarrassing recovered and was trading at around $48 in influence this will have is as yet unclear. Butrecall by Toyota Motors, which started mid-November, still about a third down certainly pressure groups will monitor whattowards the end of 2009, leapt up to disas- from the pre-spill price, representing a loss companies disclose and incorporate this introus levels, bringing the reputational risk in market capitalisation of more than $60bn. to future campaigns.back in focus in boardrooms. Second, and The company faces potential liability In 2010, activists did keep up themore defining, a jolt came in April when BP from a number of legal claims including a pressure. Dirty Clothes, a report by thebecame the poster child of bad business class action lawsuit arising from those National Labour Committee, a US-basedafter the oil leak following an explosion on affected by the spill. BP has estimated the rights group, accused a Wal-Mart and JCthe Deepwater Horizon rig in the Gulf of likely cost of the spill will be more than Penney supplier in Jordan of human traf-Mexico. $40bn. The cost may be twice as much if ficking and abusing young women migrant The BP oil leak, the worst environmental gross negligence is proven on the part of the workers from Sri Lanka, Bangladesh anddisaster in US history, is certainly the company. India.
12 Review of the year Ethical Corporation • December 2010-January 2011 CHERYL_CASEY/DREAMSTIME.COM 2010’s ups and downs January • The credibility of the fourth assessment report of the Intergovernmental Panel on Climate Change is challenged after several embarrassing errors are discovered. February • Wal-Mart announces a huge target of removing 20m tonnes of carbon emissions from its supply chain by 2015. • The Environmental Justice Foundation released a new report – Slave Nation – exposing how cotton production in Uzbekistan continues to violate human rights. April • Marks & Spencer announces target to become the world’s most sustainable retailer by 2015. • Explosion on BP’s Deepwater Horizon oilrig in the US. May • GRI and Global Compact announce collaboration to align their work. June • An Indian court convicts seven former Union Carbide officials of criminal negligence in the 1994 Bhopal gas tragedy. July • IFC/World Bank releases a draft framework for engagement with palm oil sector. • UK Stewardship Code published. • US Congress passes the Dodd-Frank Bill that bars banks from risky and speculative investments such as proprietary trading, operating hedge funds and private equity fund. August • International Integrated Reporting Committee launched by GRI and A4S. • Indian government halts Vedanta Resources mining project in Orissa due to serious violations of environmental rules. October • The Convention on Biological Diversity produces a global agreement on 20 goals by 2020. • The final Teeb (The Economics of Ecosystems and Biodiversity) report issued. November • First CDP Water Disclosure Project report launched. • ISO 26000 guidance standard on social responsibility launched. America blames BP Apple set a new benchmark in supply producer Sinar Mas and said it would use operating practices, consumer issues, and chain reporting when it included disclosure only certified sustainable palm oil by 2015 in community involvement and development. of labour standards violations in supplier its products. “The big question now will be to see how factories this year. However, the iconic IT A number of other brands have stopped well it is received by the market and how it brand soon found itself under attack after a sourcing from Sinar Mas including Unilever is used,” Hohnen says. series of tragic cases of suicides by workers and Burger King. Greenpeace had alleged ISO’s decision to charge 192 Swiss francs employed by the company’s largest that the palm oil producer was responsible (about $198) for the ISO 26000 standards supplier Foxconn in China. for destroying rain forests, threatening the document, instead of making it available for Notorious for shunning responsibility, endangered orangutan and the livelihood free, may discourage small and medium- the palm oil industry uncannily managed to of the local people. sized enterprises from accessing the come under the spotlight this year as standards. Greenpeace continued its campaign against Macro-level developments And corporate responsibility observers unsustainable practices. However, the year was more remarkable for say ISO 26000 can potentially become more Major companies that found themselves macro-level initiatives. The most significant than voluntary. For example, some govern- at the receiving end of high-profile event was the final passing of the much ments may want to pass domestic campaigns were Nestlé, HSBC and Burger awaited ISO 26000 guidance standards on legislations to adopt and implement stan- King for their connections with the Sinar social responsibility. dards contained in ISO 26000. Mas group, one of the largest palm oil “The publication of IS0 26000 is truly Another possibility, which sounds more producers in Indonesia with dubious historic. It provides what is the most immediate and real, is that NGOs are likely credentials. comprehensive and authoritative definition to identify and target companies which do Greenpeace’s attack on Nestlé’s use of of what being ‘socially responsible’ means not live up to the ISO 26000 standards. This unsustainable palm oil, with a spoofed Kit- in the age of globalisation,” says Paul will force multinational companies in partic- Kat video clip on YouTube, was perhaps one Hohnen, an Amsterdam-based sustain- ular to demonstrate that they have of the most talked about campaign of the ability consultant and an expert participant embedded ISO 26000 guidance standards in year, and became an example of how social in the ISO working group on social respon- their corporate responsibility strategy. media can be used effectively by pressure sibility since 2004. Higher uptake of ISO 26000 may see a groups. Nestlé retaliated by asking YouTube The guidance standard, which is volun- rise in annual corporate responsibility to remove the clip and in the process tary and not certifiable, covers seven core reports and more companies opting for attracted even greater criticism by activists. subjects: organisational governance, human independent assurance of their reports as Eventually, Nestlé cut ties with palm oil rights, labour practices, environment, fair the guidance standards emphasise the
Ethical Corporation • December 2010-January 2011 Review of the year 13value of social responsibility reports andindependent verification of informationcontained in the reports. Corporate responsibility reporting itselfsaw important developments. A landmark initiative during the yearincluded the formation of the InternationalIntegrated Reporting Committee (IIRC), ledby Global Reporting Initiative and thePrince of Wales’s Accounting for Sustain-ability Project. This aims to create a globallyaccepted framework for integratedreporting by 2020, an ambitious goal withpotentially far-reaching implications forhow companies report. An integrated reporting frameworkwould enable companies to produce asingle report that includes informationabout their financial performance alongsidethe information about their environmental,social and governance performance. “The decision by GRI to move towardsintegrated reporting is a risky move whencorporate responsibility is still emergent as amanagement function,” says Leeora Black, Marks & Spencer still sets sustainability standardsfounder and managing director ofAustralian Centre for Corporate Social use of social media tools, more robust online sible for promoting corporate governanceResponsibility, a consulting and training formats, issue-based reports, and better and reporting, published the Stewardshipfirm. reporting on materiality and stakeholder Code for institutional investors. “But if it pays off as I think GRI intends, engagement. The code, which will mainly apply toit will be a huge step forward as it brings the Badly bruised from the recent financial asset managers, institutional investors,muscle and know-how of the accounting crisis and suffering from depleting public pension funds, insurance companies,profession to bear on the subject of manage- trust, financial institutions appeared more investment trusts and foreign investors, isment information – a potential ‘fast’ route to open to embracing responsible investment aimed at improving transparency on howmainstreaming,” Black adds. principles. institutional investors manage their invest- The number of investment institutions ments in the investee companies.Reporting rules signing up to the Principles for Responsible The code, based on a comply-or-explainGRI is also advocating that environment, Investment (PRI), an initiative by the United approach, expects institutional investors tosocial and governance reporting should be Nations Environment Programme and the publicly disclose how they discharge theirmade mandatory for all large and medium- Global Compact, jumped to more than 835 stewardship responsibilities, have a publiclysized companies by 2015 in the OECD in 2010 representing $22bn assets under stated conflict management policy, activelycountries. management, up from about 600 in 2009. monitor investee companies, be willing to In another significant move, GRI and the act collectively with other investors, have aUnited Nations Global Compact decided to clear voting policy and disclose votingwork together to include the Global NGOs are likely to identify activity, and periodically report on theirCompact adopting the GRI guidelines as the and target companies which stewardship.recommended reporting framework for its do not live up to the “High quality stewardship supports andmore than 5,800 signatories. protects value creation over the long term. “The debate on reporting moved in 2010 ISO 26000 standards By meeting the broader interests of society,from whether to report to how to report, it also protects the continuing ‘licence toand this includes fundamental questions The initiative had only 50 signatories when operate’ of pension funds and other assetabout presentation of CR reports – online or it was launched in 2006. owners and of the investment managersprint/download – versus integrated and PRI signatory companies are obliged to who are their agents,” says Pennyfrequency of update,” says Elaine Cohen, complete an annual survey on their Shepherd, chief executive of UK Sustainablehead of consulting firm Beyond Business progress on responsible investment activi- Investment and Finance.(and a regular report reviewer for Ethical ties. This year, 40% of them decided to make Shepherd says increasing numbers ofCorporation). their survey answers public, up from 25% pension funds are requiring their invest- Cohen says the other trends to watch for last year. ment managers to demonstrate theirin 2011 include non-profit reporting, online In the UK, the Financial Reporting commitment to the UN-backed Principlesengagement around reporting, increasing Council, the independent regulator respon- for Responsible Investment. “Use of the UK
14 Review of the year Ethical Corporation • December 2010-January 2011 FRANZ DEJON profit Carbon Disclosure Project (CDP) has climbed to more than 3,000 this year – a major leap from just 235 companies in 2003. A number of companies including PepsiCo, Dell, Juniper Networks and Reckitt Benckiser have started asking their suppliers to disclose emission data by participating in the CDP supply chain programme. In the US, a number of consumer compa- nies including Starbucks, Nike, Levi Strauss and Timberland continued lobbying for a strong climate change law through their association Business for Innovative Climate and Energy Policy. The first CDP Water Disclosure report, based on responses from 147 companies, which are among the world’s largest, this year indicated that water security was already high on the corporate agenda. Of the companies, 67% are reporting responsi- bility for water-related issues at the board or executive committee level while 89% have Despite pressure, real agreement on biodiversity remains elusive already developed specific water policies, strategies and plans. Stewardship Code can form an important 193 governments got together for the The flipside is that only 50% companies part of this commitment.” Convention on Biological Diversity (CBD) that were sent the CDP questionnaire chose More than 55 asset managers, including in Nagoya, Japan, in October to hammer to respond. big names such as Aviva, Aberdeen, Axa, out a global deal for conservation – the Goldman Sachs, HSBC, JP Morgan and UBS summit participants don’t seem to have The year ahead and about a dozen pension funds have allowed the report to guide their approach. So, at the end of 2010, environmental already signed up to the code. The CBD eventually succeeded in impacts remain in the spotlight. We will reaching a last-minute agreement on 20 report next issue the outcome of this year’s Biodiversity politics objectives for 2020, but analysts warn it is climate change summit in Cancun. In the The Economics of Ecosystems and Biodiver- too early to celebrate the deal, as its long- run up, there has been little hope that the sity (Teeb) study, an initiative supported by Cancun meeting will produce any substan- the G8 countries and Brazil, India, China, tial global deal to cut greenhouse gas Mexico and South Africa, published its final Badly bruised, financial emissions, much like Copenhagen a year report this year making progress towards institutions appeared more earlier. understanding the global economic benefit open to embracing responsible A lingering recessionary hangover in the of biological diversity, and the costs of the US and limping economies in several loss of biodiversity. investment principles European countries would discourage these An international agreement on the nations from making any meaningful economic value of biodiversity could have term implications will take some time to commitment to cut carbon. China and India far-reaching implications for companies in become apparent. Commentators have have not changed their outlook on climate biodiversity sensitive industries such as even criticised the CBD for declaring the change, either, since the Copenhagen mining. summit a success while failing to publish summit: both of them still refuse binding Shepherd of UKSIF says the Teeb report the agreement. targets. could facilitate the development of regula- Observers say the goals adopted are Otherwise, the year 2011 may well be tory and public policy measures to make weak, unclear, lack the sense of urgency partly shaped by some of the macro-events usage and replenishment of natural needed to halt nature’s destruction, and are of 2010, such as the extent to which compa- resources material to the bottom line for largely unbinding. nies apply ISO 26000, use biodiversity many industry sectors. While the global community failed to agreements and the Teeb report to realign “Managing their use of ‘ecosystem arrive at any deal on climate change in their strategies. services’ may soon be business as usual for Copenhagen in 2009, a number of busi- Corporate leaders will continue to companies not just in natural resources but nesses continued their own initiatives to improve their carbon emissions reduction in a range of industry sectors,” Shepherd reduce carbon emissions from their opera- performance – even in the absence of a says. tions. global political deal – and take their corpo- Though the timing of the Teeb report The number of companies disclosing rate responsibility reporting to the next was just right – it came out a week before their carbon emission data through the non- level. I