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Heading: Business and society

  1. 1. Heading: Business and society N.N. Pusenkova, project director Е.А. Solntseva, project expert Environment responsibility of Russian business: myths and reality The experts of the World Wildlife Fund (WWF), executing in Russia conducted a research «Contribution of the key companies of Russia in sustainable development”. The main points of this project were described in the previous issue of the Net magazine. This time the magazine readers among the very first can see the results of the large-scale work. Today we speak much of ecology and sustainable development sometimes not exactly understanding what it means. In our Russian reality ecology is often used for other purposes – as a weapon in competitive activity and powerful instrument used by the Government under certain circumstances and putting in action in order to exert political pressure on companies. On the other hand, ecology turned out to be an idea that made people to combine together and come out for mass demonstrations in defense of Baikal… Actually environment policy carried out properly can become a method for improvement of competitiveness of Russian economics in general and of particular corporations as well. According to experience, the environment responsible companies obtain a diversity of competitive advantages: their efficiency and effectiveness increase, resource consuming is reduced, ways out to the new so called “ecologically sensitive” markets make easier, financial indices improve, client base is enlarged, brand loyalty becomes stronger, attraction of skilled employees becomes easier, image of the company improves, investment and credit ratings increase, borrowing becomes less expensive. On account of sustainable development there are also a lot of questions: the debates all over the country about the very possibility of development in Russia are not closed, will it hamper the acceleration of economic growth and double increase of GDP, who will be the driving force (the state, business, nongovernmental organizations, population)? The research of World Wildlife Fund (WWF) «Contribution of the key companies of Russia in sustainable development” reveals certain clarity: it demonstrates that environment responsibility is not luxury but a tool for advance and assistance in debunking of several myths appeared around sustainable development and environment responsibility of Russian business. A brief description of the project was adduced in the previous issue of the magazine, this time we will tell about its results. We remind that 67 companies sent back the answers. The best presentation was given by the companies of oil-and-gas production sector, timber industry, ferrous metallurgy, chemical and petrochemical industries. Among a financial sector the only one who gave the answers at first was only “Alfa- bank”, a member of corporate club WWF of Russia. For better understanding of the reasons of such indifference of bankers we sent our questionnaires to smaller representatives of the financial sector where we have our private acquaintances. They honestly confessed: “We fill the questionnaire due to our friendly relations, as this problem is completely insignificant for us” (they slightly spoiled the overall picture as rapidly gave “no” answers to almost all questions). 1
  2. 2. Not all companies answered all the questions, that is why we don’t give the results in percentage terms but in absolute ones. On the other hand we’re glad that the great part of respondents did not give off with formal answers “yes” or “no”, but gave rather detailed description of their goals, tasks, principles and problems. A little more statistics: 54 companies that filled in the questionnaire conducted international activity; 13 companies worked only within Russian bounds. The most common form of international activity was export operations (43), attraction of international credits (15), establishment of branches abroad (14) and realization of foreign investments (12). We have to make a reservation that we regard the answers of the companies described in the article as a declaration of their intention to run environment responsible business, to make their contribution in sustainable development rather than a real picture of the enterprise activity. We will know for sure that companies proceed to actions when we see confirmation and assessment of environment policy of the companies performed by the third-party independent organization within the bounds of ecological or any other audit. Thus, as an example, the information given in BP sustainability reports is confirmed by Ernst & Young, auditor’s comments appeared on the pages of “BP Sustainability report”, and the full text of a confirmation letter including all comments is placed in Internet at the address indicated at the cover-page of the report. Without such objective audit of environment policy and its implementation by the companies took part in our research we could say the only thing: the research clearly demonstrated that big Russian companies recognized the importance of environmental policy and that was a considerable step forward. So, first of all – about myths Myth № 1. Russian business thinks only of the profit and for its sake destroys the nature. WWF allows to prejudice this myth. To the question “Are ecological parameters important for your enterprise?” 38 companies answered that ecological factors are of great priority for them and 28 companies answered they take ecological aspects in account when making business decisions. Only four companies answered they have no concern about ecology – it is indicative that all of them don’t run international activity. Overwhelming majority of the companies (55) confirmed they took concrete measures for reduction of negative effect on environment; only six respondents mainly from financial sector did not take such measures. 23 companies stated they produced commodities or rendered services able to make contribution in solution of ecological problems, 24 companies did not produce. The list of such commodities and services turned out to be rather interesting and various: production of macadam out of metallurgy industry waste (“Novolipetsk steel”); production of “environment clean” matches (“Plitspichprom”), production of bio-reactors (“Volgoneftekhimmontazh-Eco-Tekh”), services of utilization of mercury lamps and water treatment for the third-party organizations (“Severstal”); Visa plastic cards with 0.3% of the purchase amount transferred for ecological activity of WWF Russia (Alfa-bank). What measures can companies take in order to improve the state of environment? The most irrefragable answers were received from oil-and-gas production companies. They increase the degree of accompanying gas utilization rather than flare it («Gasprom Neft»), realize 2
  3. 3. regeneration of oil-cut soils (“Slavneft”), perform reclamation of slurry ponds («Surgutneftegas»), produce oil products in compliance with Euro-3 and Euro-4 standards (YUKOS, «Slavneft», LUKOIL). They consult with population and ecological research-and- production enterprises («TNK-BP», «Surgutneftegas»), apply strict international standards to marine freight of oil («TNK-ВР»), exercise control of environment quality («Slavneft»; YUKOS, LUKOIL, «Tatneft», «Gasprom Neft»), apply nature- and resource-saving technologies («Slavneft»; YUKOS, LUKOIL, «Tatneft», «Gasprom Neft»). «Tatneft» carries out thorough repairs of pipelines, defends them against corrosion, and produces glass-fiber pipes. “Gasprom” realizes a program of reconstruction and technical reequipment of gas-transport facilities, energy-saving program, and environmental insurance program. «Stroytransgas» conducts ecological monitoring before, during and after construction of oil-and-gas objects, exercises control of the materials purchased. “Caspian Pipeline Consortium” applies the best of existing technologies when realizing new projects, provides strict compliance of its activity with international ecological standards. Other sectors presented not so widely in our sampling also demonstrates understanding of the gravity of ecological problems. AvtoVAZ works at reduction of car weight in order to increase fuel economy and reduce CO emissions; «Chelyabinsk tube-rolling plant» applies environment clean technologies such as production of welded pipes using ceramic flux instead of fused ones. “Nizhnekamskneftekhim” and “Arkhangelsk PPM” organize ecological training of the personnel; «PRISCO Corporation» teaches the personnel methods of ship control and running safe to environment. “Baltika Breweries” recycles up to 98% of water; «Mosgortrans» exercises ecological control of transport facilities and switches city buses to natural gas as cleaner fuel. «Russian Post» obtains a license of collecting, transportation and disposal of hazardous waste. «Kuibyshevazot» places the materials of environmental impact assessment in the reception room of Togliatti Mayor Office and at the sites of Office’s official information. «Izhevsky radiozavod» holds annual “Days of ecology” at the enterprise. Among the respondent companies 44 exported their products/services, 15 ones – did not. 15 companies of those 44 had different problems under exportation including the problems concerned with environmental restrictions. Thus, “Arkhangelsk PPM” stated that many consumers in Europe require FSC1 certification for the pulp exported. For “Plitspichprom” such restrictions are included in compliance of the exported matches with EN 1783:1997 standard, for «Primorskiye Lesopromyshlenniki» - exported timber should be processed with antifungal agent. FSUE “Zvezdochka” notes that the exported engineering products should have a certificate confirming their environmental safety. The main restriction for «Severstal» lies in the following - metal-roll coating should not contain hexavalent chrome, «EuroChem» – in prohibition of saltpeter exportation. This question was added to the questionnaire not for idle curiosity: WWF having considerable influence on European Union has already rendered assistance to exportation of environment responsible and safe products to the Europe from the other countries of BRICS group, particularly from China. And potentially can assist those Russian exporters who demonstrate their ecological consciousness and willingness to comply with international quality norms and standards. Myth № 2. Even if Russian companies demonstrate environment responsibility that is nothing but PR-device aimed at attracting of foreign investors. 1 FSC, Forest Stewardship Council, Лесной попечительский совет 3
  4. 4. This myth can be disproved by answers of the companies to the question – why do they pay attention to ecological factors? The results (several variants were possible) take places as following: This is an element of basic values and corporate principles of the company 41 This is an aspect of regional and social policies the company adhered to 34 This can expand export opportunities and give way out to important foreign markets 19 This allows to increase the market share relatively to other competing products 17 This improves efficiency as allows to apply resources more effectively 17 This is a demand of principal shareholders, consumers and clients of the company 15 This is a useful marketing strategy allowing company to stand out among others 14 This facilitates the attraction of foreign investments 11 This is a field of your activity, i.e. your company sells ecological commodities or 7 services According to companies’ answers it’s obvious that attraction of foreign investments is far from being the most important stimulus. Overwhelming majority (41) answered that this corresponds to basic values and corporate principles of the company, 34 respondents admitted this is an aspect of regional and social policies of the company. Corporations start to realize the importance of environment responsibility and that is a considerable step forward – Russian enterprises just recently start to move to a global play and in practice become acquainted with the best international commonly accepted practice. Besides, it’s very important that many companies regard it as a factor of improvement of their competitiveness. Answers to this question more or less correspond to those we could expect from foreign companies, though in European Union and North America countries the greater part of the respondents would pointed that it was a demand of principal shareholders, consumers and clients. Accordingly, Russian non-governmental organizations, higher education institutes, various associations receive a task – to bring up and educate consumers with respect of environment responsibility, and first of all - a middle class as being a powerful driving force for sustainable development on the West, it is still in a process of forming in Russia. Myth № 3. Russian companies try to save on nature-conservative measures. Probably, it doesn’t entirely correspond to reality. 53 companies of our respondents answered they have a separate budget for ecological actions and only 11 companies have no the budget like this. Moreover, 29 companies even named the amount of the budget that seemed to be a very positive moment – as Russian companies are not famous for openness in respect of financial information disclosure. The gap between the budgets is very wide – from 33 thsd. dollar annually for «Penzensky valve plant» to 233 mln. dollar for “Gasprom”. Certainly, this brings up the allowable question that is beyond the bounds of our research – are there enough funds for solution of environmental problems the companies face with and for achievement of the goals declared? Myth № 4. Russian business has no need of eco-marking and ecological certification. 4
  5. 5. There are many talks about eco-marking and ecological certification of ISO 14001 and FSC types. Are they just tribute to fashion, or do the companies really gain advantages of this certification that is hard to obtain: it takes much time and money. Answers of the companies gaining the advantages of marking and certification or not are divided almost equally (29/30). “Cherepovetsles” has an opportunity to set higher prices for the products having FSC certificate. For “Coca-Cola” company these advantages consist in increase of competitiveness, improvement of consumer relations, better image, more intense motivation of the personnel, and positive effect in relations with suppliers. LUKOIL was one of the first who gained certificate conformance to ISO 14001 and OHSAS 18001 in the year 2001, they confirmed the corporation applied modern system of ecological management and even helped to find “growth points” in a process of perfection of the existing system. The latter is more important as the availability of a certificate is not the evidence of “advance” system of ecological management. For “Stavropolskiy broiler” whose activity does not exceed the bounds of Russia this certification allows to enhance its prestige. For Ust-Ilim Lumber industry complex – it is a chance to expand the market bounds and come to ecologically sensitive markets. For aircraft building plant «MIG» - is to promote its production in the European market. All in all, 54 companies said eco-marking and ecological certification are important for their business, while the other 13 specified it as insignificant. If they are important who are to develop and promote them? Among the companies for whom they are important, 25 consider that industrial associations should develop and promote them, 16 companies think its government business. Probably the companies believe it’s easier for industrial associations to put in practice the certification that is convenient and profitable for the manufacturers of that particular sector. And what a type the ecological certification should be – national or international one? The greatest part of the companies (48) considers it should be international type and only 18 trends to national. It is obvious that so undivided opinion can be explained by the fact that companies perfectly understand – obtaining of international certification will assist in supplying of their products in the world markets. Myth №5. Application of environment friendly equipment, technology and/or processes is a hard (and unnecessary) financial burden laid on Russian companies. It turned out that 50 companies (according to their own estimation) deal with environment friendly equipment, technologies and/or processes in the course of their activity. 7 companies do not deal with them at all and the other 7 – don’t even know what does it mean (at that, “know-nothings” belong mainly to financial sector). And there goes the most interesting discovery! They were asked a question: does application of environment friendly equipment and processes lead to increase or reduce of your efficiency and expenses? The reality is: none of the respondents said that the application of ecologically friendly technologies and processes lead to reduce of their productivity. 24 companies consider such technologies and processes improve their efficiency. 23 companies noted that application of such equipment leads to increase of expenses, 18 said – to reduce of them; and 11 companies answered they did not know. Such estimation of the influence of ecological measures upon competitiveness of the companies is especially indicative against the background of the fact that outstanding Russian scientists, economists, analysts and political scientists writing numerous scientific works and political analytics concerned with economic growth of competitiveness do not almost illustrate ecological factors. This is a grave omission and alarming symptom. It turned out that in some 5
  6. 6. respects our business is more advanced, modern and conscious than academic and applied sciences and analytics. Myth № 6. Ecological values and principles are prohibitive luxury for our business. 56 companies answered the question about key ecological values and principles though some of them referred us to their corporate booklets or websites. In many respects the companies stick to similar ecological principles of technical and engineering character that on the West were the main methods at the early stages of ecological policy formation: - effective use of natural (especially energy) resources; - minimization of negative impact on environment; - observance of national and international ecological acts, rules and norms; - application of the most modern environment friendly and non-waste technologies; - processing, utilization and recycling of waste; - reduction of pollutant flux; - improvement of ecological management system; - improvement of environment in the regions of company activity. But along with standard there were original principles with clearly traced connection between economic, social and ecological tasks. These principles present that many Russian companies keep up to date and are ready to move to more modern stage of ecological policy realizing now on the West. Strategic goal of the company in 21 century is to provide sustainable development and become one of the leading oil companies in the world. This task is achieved at the expense of well-balanced solution of social and economic goals and provision of high-quality environment (LUKOIL); - provide ecological safety of the personnel and population of the areas adjacent to company objects, take into account regional peculiarities of cooperation between human beings and nature (YUKOS); - Top managers should provide achievement of ecological goals through demonstration of appropriate culture, clear distribution of roles and obligations; provision of required resources, control and improve of personnel effectiveness; open revealing of positive and negative information according to activity results (TNK-ВР). - Concern for Mother Earth means protection of environment, application of environment friendly technologies, our responsibility in respect to future generations of Tatarstan («Tatneft»). - Sincerity, reality of goals, unconditional performance of tasks; consistency of nature protective activity (“Stroytransgas”). - Prevention of negative impact on environment due to application of the most modern and reliable equipment and technologies as well as high ecological culture (Caspian pipeline consortium”). - Protection and renewal of forest resources – guarantee of the future development of the company… All employees are responsible for compliance with ecological standards. The company reveals all the information concerned with ecological aspects of its activity to all interested parties including the information of all emergencies… The company… undertakes voluntary efforts to comply with higher requirements of 6
  7. 7. ecologically sensitive markets and realizes initiatives exceeding the requirements of existing legislation… («Ilim-Pulp») - FSC certificate proves that the company is environment responsible, socially oriented and economically effective («Lesosibirsky LDK №1»). - Sustainable development of manufacture that implies equal emphasis on economic, social and ecological components and admission of the fact that development of human society is impossible when provoking the further degradation of the Nature («Aviastar-SP»). - The company management considers environment protection activity as an integral part of the business («Norilsk Nickel») - Effective business in the field of metal production in harmony with environment («Novolipetsk steel») - Nature protection is one of the main conditions for company prosperity («Baranchinsky electromechanical plant»). - The company is guided by the principles which being observed is the pledge for integration in the world community and assistance in sustainable development («Shatura»). So, though many companies make a stress on technical and technological solutions “at the end of the pipe” or underline the necessity of observance of national and international ecological norms, a number of companies nevertheless overstep the bounds of engineering and legal approaches and develop “human capital”, ecological culture, understand the necessity to extend cooperation with all the persons concerned, train the personnel. By the way, the last aspect – a poke at the garden of Russian system of higher and business education: how many business schools offer ecological management or sustainable enterprise studies? Besides, progressive companies turned out to be more “upgraded” in this respect, obviously at the expense of greater internationalization of their activity and creative application of the best international practice. Myth № 7. Russian companies remain behind their foreign colleagues in application of modern ecological practice. It’s not completely true. Among our respondents 37 companies publish regular ecological reports, 26 companies do not. Since Russian companies become more progressive and have better idea of international rules of play they understand that such reports confirm their openness and transparency improving their image in Russia and especially abroad. Moreover, Russian companies are rather active in application of nature protection approaches standard for foreign companies. The form contains a question: does your company apply one of the environment friendly (safe) business practices listed below? Assessment of the impact upon environment 52 Process of ecological “due diligence” 12 Ecological audit or assessment (at least once a year) 16 Acquisition of ecological and less power-consuming office equipment, e.g. conditioners 18 not destroying ozone layer and energy effective luminaries. 7
  8. 8. Using of alternative energy resources 9 This means that assessment of the impact upon environment is the most commonly used type of environment friendly practice. And relatively smaller popularity of alternative power resources can be explained by the enormous (so far) resources of nonrenewable power sources. Another question debunks Myth №7: Has your company ever felt the impact of (or complied with requirements) of: ISO 14001 Certification of International Standard Organization 31 Financing granted by the European bank for reconstruction and development or World 11 Bank group Principles of Global Compact or Global Reporting Initiative 9 Certification of the Forest Stewardship Council (FSC) for timber and timber products 7 Corporate social responsibility (CSR) 6 «Clean Development Mechanism» or «carbon credit sale» 4 The «Equator» principles supported by private financial institutes 1 Certification of Marine Stewardship Council (for sea products) applied by World 0 Wildlife Fund for Nature (WWF) and Unilever Projects and/or financing of Global Environmental Facility (GEF) 0 It is obvious that ISO 14001 certification is quite naturalized on the Russian basis and financing of EBRD or the World Bank group with their strict ecological demands has become rather usual business. Besides, one more omission of our banking sector – Equator principles supported by the world key private financial institutions conducting project financing are still exotic for Russia. Myth №8. The maximum Russian companies are capable of is to install treatment plants at their enterprises. 52 companies among our respondents clearly know the most effective measures they could apply to protect environment. In addition to standard technological and legal measures they are ready to perform the following: to advance the idea of energy effective houses among the population («Rockwool International»); to give ecological education to the population, to organize summer camps for schoolchildren to support the activity of forest reserves and national parks («Coca-Cola»); to realize consultations with the society («TNK-ВР»); to produce engines complying with Euro-2 and Euro-3 standards (KAMAZ); to participate in alteration of logging operations Rules (Cherepovetsles); to use payments for negative impact upon environment for solution of ecological problems of the company (“Ural works of civil aviation”) 8
  9. 9. Myth № 9. Russian companies are afraid of Russia’s entry into WTO. In order to check whether this myth deserves to be believed in, we asked: what effect upon competitiveness of the company and quality of environment in the country can be given by Russia’s entry into WTO? The answer was rather convincing: companies’ attitude toward entry into WTO varied from positive to neutral. Twelve companies considered it would increase their competitiveness compared to 11 companies which were afraid their competitiveness would be undermined. 21 companies thought it would not influence on their competitiveness, 9 companies didn’t know the answer. Concerning impact on environment the result turned out to be much more positive. 28 companies thought the entry into WTO would improve the state of environment in the country, and only 5 companies were afraid of worsening. 19 companies did not forecast any effects and 11 companies did not know the answer. Myth №10. The Governmental environment policy does not exert enough influence upon the companies. It turned out that this myth (by the way, the authors of this research believe in it too) is far from truth. We asked a question: what do you think to be the main factor stimulating nature- conservative activity of Russian companies (several variants were possible)? The result was the following: A wish to reduce pollution payments 37 Aspiration for law observance 36 A wish to provide high-quality environment in the region of company’s activity, 35 residence of its employees and their families. Perception of the fact that observance of nature-conservative norms is able to increase 34 competitiveness of the company. Incentives of the Government (tax benefits, credits) 32 Administration sanctions (ecological fines, enterprises shutdown, actions at law) 30 Necessity to comply with ecological standards because of intense internationalization 28 of business and integration into the world economics Nature conservative activity of the population 12 Preferences of the consumers of products/services 10 Activity of non-governmental organizations. 6 To our delight the companies turned out to be law-abiding as the main reasons of nature- conservative activity according to their estimate were “a wish to reduce pollution payments” and “a wish to observe the law”. The third in importance factor (and on our opinion more believable) was “a wish to maintain high-quality environment in the region of company’s activity and residence of employees and their families”, the fifth and sixth factor – governmental sanctions (administrative and economic ones). It is pleasant to note that 28 answers emphasized the necessity of compliance with ecological standards because of Russia’s integration into the world economics, and 34 answers were brought to the fact that environment responsibility made a contribution to increase of company’s competitiveness. 9
  10. 10. The last question of our form assists in refutation of the myth № 10: give your assessment to the Governmental environment policy of Russia? The results available: It contributes to increase of environment quality in our country. 34 It makes no influence upon environment quality. 24 It hampers the improvement of environment quality. 3 Thus WWF research allowed to refute or reconsider many of ten ecological myths. So we have arrived at 10 conclusions. 1. The greatest ecological consciousness is demonstrated by the companies either running international activity, or functioning in so-called “dirty” branches, or operating in unfavourable in respect to ecology regions. 2. Big Russian companies give rather adequate assessment to the role of environment factor in functioning and provision of business competitiveness. 3. The most important stimulus of their environmental consciousness and ecologization tool is internationalization of their activity and integration into the world economics. 4. At the moment business is a real driving force of sustainable development in Russia. 5. For the time being the companies make the main stress on technical and technological measures and engineering solutions trying to reduce their impact upon environment – this stage corresponds to the stage of environment policy being already passed on the West. 6. However the most progressive companies have already tried to apply more advanced, leading approaches, e.g. having an effect upon the human factor. 7. The companies of the real sector of economics are well enough acquainted with environment friendly practice prevailing on the West, but at the same time representatives of the financial sector and a number of other branches (fishing industry, IT, etc.) are left far behind their foreign colleagues. 8. Many respondents understand that active environment policy is a factor of the competitiveness improvement. 9. Russian business takes Russia’s entry into WTO as a sufficiently positive factor. 10. The example of Russian companies can turn out to be very useful for their colleagues from BRICS group as help them to overcome “Claudia Schiffer complex”. For the representatives of developing countries environment policy of such companies as BP, Shell, General Motors, Unilever, etc. can be regarded as inaccessible luxury, as they are too rich and progressive (ordinary women take top-models like this – “I will never look like her”). On the contrary, Surgutneftegas, Cherepovetsles, Ammophos, Yakutugol can be regarded as “a neighbor girl” they can easily compete with in appearance. Their ecological success seems to be particularly impressive and accessible as they achieved it under rather unfavourable conditions. Accordingly Russian companies can do more than just learn from the western companies, but serve as a model to emulate for BRICS group. 10