corporate_social_responsibility_(and_the_fmcg_market_response).pdf

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Corporate Social Responsibility (andthe FMCG Market Response)

Euromonitor International : Strategy Briefing

May 2006


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Strategy Briefings World

Euromonitor International Page i

List of Contents and Tables

1. Executive Summary........................ ..................... .................... ........................ .................... .................... ............ 11.1 Trends................ ..................... ..................... ..................... ...................... ...................... .................... ................... 1

Chart 1 Factors Affecting Health-Related CSR Policies 2006........................................................21.2 Relevant Market Trends........................... ....................... .................... ...................... ..................... ...................... 2

Chart 2 Value Growth in Relevant Sectors 2000/2005 ...................................................................31.3 Company Action ...................... .................... ...................... ...................... ..................... .................... ................... 3

Summary 1 CSR Efforts by Major FMCG Operators ...........................................................................31.4 Future Outlook .................... ..................... .................... ....................... ..................... ...................... ..................... 7

2. Introduction and Definitions ...................... ...................... .................... ........................ ................... ................... 72.1 Scope of the Report...................... .................... ...................... .................... ...................... ..................... ............... 7

2.2 Csr Overview.... ....................... ..................... .................... ........................ .................... .................... ................... 8

3. Health and Safety Issues ....................... ..................... .................... ........................ .................... .................... ... 11

3.1 Smoking ..................... .................... ..................... ....................... .................... ....................... ..................... ........ 11Table 1 Smoking Levels in Selected Markets 2000-2005.............................................................11

3.2 Irresponsible Drinking ....................... .................... ..................... ...................... ..................... ..................... ...... 12

Table 2 Death Rates from Chronic Liver Disease and Cirrhosis by Select Market2000-2005 ..................... ...................... ..................... ..................... ....................... ............ 13

3.3 Over-consumption of "junk Foods" .................... ...................... ..................... ..................... ..................... .......... 14

Table 3 Obese Population in Selected Countries 2000/2005......................................................... 15

4. Government Action/legislation. ..................... ...................... ..................... ...................... ..................... ............. 164.1 Csr Reporting ...................... .................... ...................... ....................... .................... ..................... .................... 16

4.2 Anti-smoking Measures ...................... .................... ..................... ...................... ..................... ...................... ..... 17

4.3 Anti-alcohol Measures........................ ................... ...................... ...................... ..................... ..................... ...... 21

4.4 Anti-obesity Measures .................... .................... ...................... ..................... ..................... ....................... ........ 22

5. Lobbying Forces ...................... .................... ...................... ...................... ..................... .................... ................. 245.1 Environmental and Ethical Groups .................... ...................... ..................... ..................... ..................... .......... 25

5.2 Smoking Pressure Groups ..................... .................... ....................... .................... ...................... ...................... . 25

5.3 Industry-funded Ngos ..................... ..................... ..................... ...................... .................... ....................... ........ 26

5.4 Industry's Own Lobbyists......................... ....................... .................... ....................... ..................... ................... 27

6. Voluntary Industry Measures .................... ...................... ...................... ...................... .................... ................ 27

6.1 the Tobacco Industry ...................... ..................... ..................... ...................... ..................... ..................... ......... 27

6.2 the Alcohol Industry ....................... ..................... .................... ....................... ..................... .................... .......... 28

6.3 the Food and Drinks Industry............ .................... ........................ .................... ..................... ..................... ...... 30

7. Consumer Issues ...................... .................... ...................... ...................... ..................... .................... ................. 317.1 the Influence of the Media ..................... .................... ....................... .................... ...................... ...................... . 31

7.2 Consumer Attitudes .................... ..................... ....................... ..................... .................... ..................... ............. 32

7.3 Demand for Natural Ingredients ...................... .................... ..................... ....................... ..................... ............ 33

7.4 Opposition To Marketing To Children ................... ..................... ....................... .................... ..................... ...... 34

7.5 Backlash Against Gm Foods.................... ...................... ..................... ....................... .................... .................... 35

7.6 Legal Action ..................... .................... ....................... ..................... .................... ....................... .................... .. 36

8. Impact on Consumer Markets.................... ...................... ...................... ...................... .................... ................ 378.1 Confectionery ....................... ................... ...................... ....................... .................... ..................... .................... 37

Table 4 Sales and Growth of Confectionery Products in Selected Markets 2000/2005 ................38

8.2 Sweet and Savoury Snacks............. ..................... ....................... .................... ..................... ....................... ........ 38 Table 5 Sales and Growth of Sweet and Savoury Snacks in Selected Markets

2000/2005 ..................... ...................... ..................... ..................... ....................... ............ 39


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Euromonitor International Page ii

8.3 Breakfast Cereals ........................ ................... ...................... ...................... ..................... ..................... ............. 40

Table 6 Sales and Growth of Breakfast Cereals in Selected Markets 2000/2005.......................... 408.4 Carbonated Drinks ...................... .................... ...................... .................... ...................... ..................... ............. 41

Table 7 Sales and Growth of Carbonated Drinks in Selected Markets 2000/2005........................ 418.5 Fast Food ..................... ..................... ..................... ...................... ..................... ..................... ...................... ..... 41

Table 8 Sales and Growth of Fast Food in Selected Markets 2000/2005......................................428.6 Beer ....................... ..................... .................... ....................... ..................... .................... ........................ ........... 42

Table 9 Sales and Growth of Beer in Selected Markets 2000/2005 ..............................................438.7 FABs....... ....................... .................... .................... ....................... ...................... .................... ...................... ..... 43

Table 10 Sales and Growth of FABs in Selected Markets 2000/2005 ............................................ 448.8 Cigarettes ..................... ..................... ..................... ...................... ..................... ..................... ...................... ..... 45

Table 11 Sales and Growth of Cigarettes in Selected Markets 2000/2005......................................45

9. Case Studies ...................... .................... ...................... ...................... .................... ...................... ..................... .. 469.1 Anheuser-Busch........... ..................... ...................... ...................... .................... ...................... ...................... ..... 46

9.2 British-American Tobacco Plc .................... ...................... ...................... ...................... .................... ................ 47

9.3 Cadbury Schweppes.................... ..................... ....................... ..................... .................... ..................... ............. 49

9.4 the Coca-Cola Company ....................... ..................... .................... ........................ .................... .................... ... 51

9.5 Diageo ....................... .................... ..................... ..................... ...................... ..................... ...................... ......... 54

9.6 Kellogg Company ........................ ................... ...................... ...................... ..................... ..................... ............. 55

9.7 Kraft ...................... ..................... .................... ...................... ...................... .................... ...................... ............. 57

9.8 McDonald's Corp ........................ ................... ...................... ...................... ..................... ..................... ............. 59

9.9 PepsiCo ..................... .................... ..................... ....................... .................... ....................... ..................... ........ 61

9.10 Unilever Group.................. ..................... ....................... .................... ..................... ..................... .................... 62

10. Outlook......... ....................... ................... ...................... ....................... ..................... .................... .................... 6410.1 Trends To Watch ....................... ................... ...................... ..................... ...................... ..................... ............. 64

10.2 Market Forecasts............... .................... ...................... ...................... ..................... ...................... ................... 66

Table 12 Forecast Global Value Sales in Relevant Sectors 2005/2010...........................................67


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Euromonitor International Page 1

CORPORATE SOCIAL RESPONSIBILITY (AND THEFMCG MARKET RESPONSE)

1. EXECUTIVE SUMMARY

1.1 Trends• Large businesses have come under increasing scrutiny in recent years with regard to their attitudes towards

the environment and employees, as well as their responsibility towards public health and safety, with somecompanies being accused of sacrificing health for profits.

• This has led many companies to re-think their strategies in terms of the types of products they offer and thecontent of their products; advertising method; and efforts to warn consumers about the possible harmfuleffects of their products.

• Issues such as the health impact of tobacco and alcohol, the increase in alcohol-related crime, and the

possible health risks associated with fatty foods and carcinogenic ingredients are worrying governments,due to rising healthcare and policing costs related to these problems.

• As a result, national and regional governments have put measures into place to control the advertising of tobacco and alcohol, warn the public of potential dangers, increase taxes on tobacco and alcohol and restrictsmoking in public places.

• The World Health Orgnization (WHO)'s Framework Convention on Tobacco Control (FCTC) finally cameinto force in February 2005, despite fierce opposition from the tobacco industry.

• Controlling obesity is more problematic, due to differing opinions about which foods are "good" or "bad".However, governments have introduced dietary guidelines, and in some cases have banned junk foods fromschool vending machines and canteens.

• A variety of labelling systems exist throughout the EU and elsewhere, and several governments have

introduced mandatory or voluntary regulations on nutrition labelling.• There are no actual laws regarding the marketing of "junk foods" to children, but the EU health and

consumer affairs commissioner, Markos Kyprianou, has warned the food industry that it must adopt self-regulatory measures in this respect, or face legislation.

• Various non-governmental organisations (NGOs) put pressure on large companies to increase theircorporate social responsibility (CSR) activities by mounting campaigns against them or lobbying thegovernment for change.

• Industry-funded NGOs, such as the UK's Portman Group and the US's Century Council, act as self-regulatory forces, campaigning for responsible drinking and aiming to reduce irresponsible marketingpractices.

• Consumer concerns over bad company practises and health issues have been fuelled by the media, as wellas films such as Morgan Spurlock's "Super Size Me"; and "The Corporation", a film based on a book byJoel Bakan.

• Ethical consumerism is at an all time high, with people increasingly demanding to know more about theorigins and content of their food. This has led to a flurry of new products that are free of GM (genetically-modified) ingredients, contain "natural" or fairly traded ingredients, and products that contain no artificialpreservatives and colourings.

• Demand for healthy and nutritious products, especially where children are concerned, has given rise togrowth in functional foods, reduced-sugar, lower-fat and low-carb foods, at the expense of those that areseen as devoid of nutritional benefits, such as crisps and fizzy drinks.

• Consumers are increasingly concerned about the methods used by companies to market unhealthy foods tochildren, such as advertisements shown during children's TV programmes, and viral marketing via theinternet or mobile phones,


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• Cases of litigation against large companies have migrated from the tobacco industry to industries that arecharged with contributing towards obesity, such as fast food, snacks and soft drinks.

Chart 1 Factors Affecting Health-Related CSR Policies 2006

Source: Euromonitor International

1.2 Relevant Market Trends• The fastest growth among the sectors under review was seen in FABs (flavoured alcoholic beverages), sales

of which increased by 82% between 2000 and 2005. This was from a relatively small base, however, withgrowth slowing in more mature markets such as the US and UK.

• The sector has been characterised by strong branding and aggressive marketing targeted at youngconsumers, so companies are under more pressure than most to promote responsible drinking.

• The confectionery market continued to grow strongly over the review period, by 34%, though the marketsof the US and Japan were more mature, and most growth in the major European markets came from thesugar-free and functional gum subsectors.

• In the light of the bad publicity surrounding sugar confectionery and chocolate, manufacturers focused overthe review period on developing sugar substitutes, low-carb products and smaller portions.

• Fast food recorded strong growth between 2000 and 2005, underpinned by demand for convenience, andthe introduction of more nutritious menus by the large chains.


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• Sweet and savoury snacks, breakfast cereals and carbonated drinks were most affected by concerns aboutobesity and other problems. Manufacturers in all these sectors made efforts to improve the nutritionalcontent of their products, while lowering sugar and salt levels.

• Global sales of cigarettes declined marginally between 2000 and 2005 to stand at just under 5.3 billionsticks, despite continued growth in China and Russia – the world's largest markets by volume.

• Value sales of cigarettes continued to rise in many markets, due to tax hikes and price rises, and there was astrong trend towards low-tar brands.

Chart 2 Value Growth in Relevant Sectors 2000/2005

% growth

Source: Euromonitor International Notes: Refers to value growth, except in the cases of alcoholic and carbonated drinks and cigarettes, which are

measured in volume terms FABs = flavoured alcoholic beverages

1.3 Company Action• Companies have tackled CSR issues in a number of different ways, but are generally in favour of self-

regulation rather than government legislation, as this allows them a greater level of control.

• Drinks companies such as Allied Domecq, Anheuser Busch and Diageo have attempted to promoteresponsible drinking through a series of television advertisements and other activities. Some also work withretailers to reduce underage access to alcohol.

• Similarly, some of the major tobacco companies, such as British American Tobacco (BAT) and PhilipMorris, support initiatives to discourage underage smoking, including pan-European and national mediacampaigns.

• Tobacco companies have less leeway to promote positive aspects of their products, and are thereforefocusing on developing "safer" cigarettes, such as BAT's "trionic" filters which reduce the amount of toxicchemicals and could soon come to market.

• Several major food manufacturers have attempted to pre-empt industry-wide agreements by introducingtheir own health labels. These typically show amounts of calories, fat, saturated fat, sugar and salt containedin each serving, how much these contribute to official guideline daily amounts (GDAs).

• Some large food and drink manufacturers, including PepsiCo and Kraft, have revised their marketingpolicies to restrict advertising to children, in the face of pressure from governments and consumers.

• In the US, several large soft drinks manufacturers have announced their intentions to take their products outof schools, ahead of possible legislation.

Summary 1 CSR Efforts by Major FMCG Operators


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Company Actions

Anheuser-Busch Operates community-based responsible drinkingprogrammes

Runs national advertising campaigns promotingresponsible drinking

Adheres to voluntary industry-wide advertising codesand its own marketing code

Develops new products that are low in alcohol and lowin carbs

British-American Tobacco (BAT) One of the few tobacco companies to publish a CSRreport

Operates youth smoking prevention programmes

Operates retail access prevention programmes

Runs national and regional (Europe-wide) smokingprevention campaigns

Working to develop "safer" cigarettesCadbury Schweppes Develops lower calorie and lower fat options, and new

sweetening techniques

Working to reduce trans-fats and salt content ofproducts

Discontinued making products with embedded toys

Adheres to a global marketing code of practice

Does not advertise to children under eight years

Discontinued king size lines; providing a broaderrange of smaller portion options

Does not vend confectionery and carbonated drinks inprimary schools

Supports initiatives that promote physical activity andresponsible consumption of its products

Introducing a global nutrition labelling standard

The Coca-Cola Company Operates fitness campaigns in schools (eg "Live It!"),including distribution of pedometers

Working to improve the taste of diet and low sugarproducts

Does not target children under 12 in any media

Follows Schools Code of Practice, whereby vending

machines are not placed in primary schools, and morehealthy choices are offered to secondary schools

Nutritional information panels on packaging now showenergy, protein, carbohydrate, carbohydrate of whichsugars, fat, saturated fat, fibre and sodium

Aims to convey active lifestyle messaging in itscommunications and sponsorship activities

Plans to launch anti-cholesterol drink

Diageo Key supporter of the WHO's World Health Day (heldannually in April)

Involved in training bar staff to influence the way inwhich alcohol is consumed

Supports initiatives to prevent underage access to


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alcohol through retail outlets

Supports anti drink-driving initiatives in many countries

Runs branded advertisements in several countries,whose core objective is to deliver a responsibleconsumption message

Adheres to a marketing code which states that it maynot market to people under the legal purchase age

Kellogg Company Operates fitness programmes (eg Frosted Flakes"Earn Your Stripes"), including distribution ofpedometers

Has revised its strategy for marketing to children tomake it more socially responsible

Has a long history of printing nutrition messages,recipes and product information on cereal packaging

Regular new product development to improvenutritional content, such as Healthy Beginnings line-up

and low-calorie snacksWorks with health organisations and governments todevelop public policies to enhance consumer health

Kraft Foods Inc Reduced fat content in 200 products in North Americaand eliminated trans-fats from certain products since2003

Fortified some products to help address nutritionaldeficiencies in various countries, including calciumand iron

Developed or acquired new products with a health andwellness focus, including flavoured waters, stringcheese and snack mixes

Sets specific nutrition criteria for Kraft products sold inschool vending machines

Supports community based healthy living programmes(eg "Triple Play in the US)

Operates non-branded health campaigns in schools(eg Health 4 Schools in the UK)

Launch of improved nutrition labels in 2004, includinglabels on small packaging

"Sensible Solution" logo used to identify products thatoffer better nutritional choices

Does not advertise to children under 6; and since

2004 only advertises "healthier" products to childrenunder 12.

McDonald's Corp Abolished its "super size" policy and introduced new,healthier menu offerings (eg, salads, bottled water,yoghurts, bagels, deli sandwiches, healthy kidsoptions)

Ronald McDonald given a more healthy image in2005, with tracksuit and juggling fruit and vegetables

Launch of global public awareness programmepromoting balanced, active lives ("it's what i eat andwhat i do … i'm lovin' it,")

Now provides nutritional information, on websites,

posters, restaurant guides, trayliners and flyersNew Nutrition Information Initiative in 2006 provides


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detailed nutrition information on food productpackaging, including comparisons with pan-EuropeanGDAs

Operates fitness programmes in schools (eg,"Passport To Play")

Launch of global "Go Active!" programme in2005,including distribution of free pedometers

J Sainsbury Appointed high profile media personality, Anna Fordas non-executive director in May 2006 to takeparticular interest in CR issues

Initiated six areas of CR focus – customers,colleagues, community, environment, investors,suppliers – each with own targets, eg for customers

Healthier Eating choices – introduced wheel of healthon food product packs to help customers makehealthier choices

Reducing salt levels in their own brand foods

Promoting food education – more than 250,000 havetaken part in their Taste of Success initiative

PepsiCo "Smart Spot" initiative enables consumers to identifyproducts that meet specified nutrition criteria (such asBaked! Lays, Life Cereal, Gatorade Thirst Quencher)

S.M.A.R.T. lifestyle programme encourages healthand fitness, including a national advertising campaign,interactive website and magazine

Has built "Smart Spot" playgrounds across the US,mainly in low-income communities

No longer advertises Pepsi brand to children under 12,

or Cheetos chips brand to children under eightLimits portion sizes of products sold in US schools,and replacement of some products with lower fatalternatives in elementary schools

Has adapted products to make them more healthy (eg,trans fats removed from several products in 2003;announced in 2006 that Walkers Crisps in the UKwould use a new type of oil which would reducesaturated fats by 70%)

Commitment to use "essentially healthy ingredients oroffer improved health benefits" in 50% of newproducts

Unilever Group Considered one of the world's most sociallyresponsible companies, with a strong commitment toall three corporate sustainability dimensions – economic, environmental, and social

Early pioneer of functional foods

Recently overhauled entire product portfolio, reducinglevels of salt, sugar and trans fats and improvedlabelling

Continuous new product development in the area ofhealthy foods, such as low-carb options, cholesterollowering products, steamed food and fruit juice "shots"

Adheres to marketing code which states that productsmay only be advertised in the context of a balanceddiet, not promote oversized portions or inactivity andexercise particular caution when advertising to


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childrenSource: Euromonitor International

1.4 Future Outlook• CSR efforts by food, drink and tobacco companies are likely to increase in the future, as companies

recognise that failure to meet expectations for socially responsible behaviour may ultimately destroyconsumer trust and hasten tough new regulations.

• The implementation of the WHO's FCTC and other anti-tobacco measures will contribute to the inevitabledecline of cigarette consumption. Tobacco companies will be forced to appear more socially responsible bywarning of the dangers of smoking and developing new products that are deemed "safer".

• Manufacturers of "junk foods" will focus on improving the nutritional content of their products, or diversifyinto sectors that are perceived as more healthy, such as fruit snacks and flavoured bottled water.

• Countries such as the UK may see further regulation with regard to advertising of alcoholic drinks, and theintroduction of nutrition labels.

• At the time of writing industry was awaiting the outcome of Food Standards Agency (FSA) proposals to

introduce a "traffic light" system denoting which foods are "good" or "bad". In the meantime, companieswill continue to introduce their own nutrition labelling systems.

• At the European level, legislation is expected to take effect from 2007 in the form of the EU's Health andNutritional Claims regulations.

• Food and drinks companies have also been warned that marketing codes may become mandatory in the EUin the future if companies do not introduce responsible self-regulation with regard to advertising to children.Some have already taken steps towards this.

• Food and drink companies may expect to see more litigation in the future, as more lawsuits such as thoseseen in the tobacco industry are brought against companies accused of causing obesity.

2. INTRODUCTION AND DEFINITIONS2.1 Scope of the Report

From the 1990s, many large corporations began to come under criticism by NGOs for their uncaring attitudetowards the environment and employees, especially in developing countries. Furthermore, members of thepublic began to initiate lawsuits against tobacco, alcohol and fast food companies on the grounds that theirhealth had suffered due to misleading advertising or lack of sufficient warnings.

When these actions began to affect consumers' attitudes and buying behaviour, companies began to take noteand change their corporate practices for the better, for example by replacing harvested trees, treating employeesbetter, and reporting financials with more honesty. More recently, companies have attempted to turn this to theiradvantage by increasing their non-financial report writing and even using CSR as a powerful tool to promoteand improve their public image worldwide.

This report focuses primarily on the CSR strategies of companies that market products that are seen aspotentially harmful to consumers' health, such as cigarettes, alcohol and foods that contribute to obesity –especially those targeting children. These include foods such as confectionery, sugary cereals, sugary softdrinks, ice cream, and fast food (hamburgers, chips/French fries, pizza, fried chicken).

The report examines the reasons behind the need for companies to take action – ie, the health problemsexacerbated by smoking and drinking, the association of alcohol with violence and road accidents, and theglobal problem of obesity. It also looks at the reasons why these issues have come to the fore in recent years, ie,through the actions of pressure groups, and consumer concerns fuelled by media coverage, and reviews keytrends in the affected market sectors.

Finally, the report analyses the measures that a cross-section of companies are taking to address these problemsand appear more socially responsible, as well as their reactions to new legal obligations placed on them by


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governments. For example, under increasing pressure from NGOs and consumers, and in an effort to pre-emptgovernment action, spirits manufacturers have increasingly sought to highlight their commitment to responsibledrinking and be seen to encourage moderation in consumption. Similarly, several food giants, including Kraft,Nestlé and Unilever, have reviewed their recipes and reduced the salt, sugar and fat content of some of theirproducts, and have also pledged to change some of their advertising and marketing practices, while these and

others have focused on improving nutrition labels.

2.2 Csr Overview

Definition

CSR is a term used to describe a company's efforts to apply the principles of "sustainable development", whileremaining sensitive to the needs of all of its stakeholders (eg employees, customers, suppliers, partners,investors). This means taking into account the social and environmental consequences of its actions, as well asfinancial and economic goals. Analyst Archie Carroll writes about a "pyramid of social responsibility", withfour basic levels of responsibility:

• Economic (the responsibility to be profitable);

• Legal (the need to obey the law);• Ethical (an obligation to do what is right);

• Philanthropic (making a contribution to the wider community).

The issues of smoking, irresponsible drinking and obesity can be said to form part of a company's "ethical"responsibilities.

CSR should not be confused with charitable donations and works. CSR is a more holistic approach that requiresa responsible company to take into full account the impact on all stakeholders and on the environment whenmaking decisions. This requires them to balance the needs of all stakeholders with their need to make a profitand reward their shareholders adequately.

Today's heightened interest in the proper role of businesses in society has been promoted by increasedsensitivity to environmental and ethical issues, largely due to media interest. Indeed, in the absence of legallybinding regulations many companies are still known to get away with corporate activity that may have adevastating effect on the local communities in which they work. Notable cases have included large corporationssuch as Shell, BAT, and Coca Cola.

In some countries government regulation regarding environmental and social issues has increased, and standardsand laws are also often set at national or regional levels (eg by the EU). Investors and investment fund managershave begun to take account of a company's CSR policy in making investment decisions. Some consumers havebecome increasingly sensitive to the CSR performance of the companies from which they buy their goods andservices. These trends have contributed to the pressure on companies to operate in an economically, socially andenvironmentally sustainable way.

Proponents of CSR believe that regulation is the best way to ensure that companies remain socially responsible.This is because by nature, most corporations probably care little for the welfare of workers, and given theopportunity will move production to sweatshops in less well regulated countries. Furthermore, most companiesdo not pay the full costs of their impact, and the costs of cleaning pollution often fall on society in general. As aresult, profits of corporations are enhanced at the expense of social or ecological welfare.

CSR report writing

Applying the principles of sustainable development through a CSR policy is often accompanied by what iscalled "triple bottom line" reporting, which declares not only financial results but also the social andenvironmental impact of the business. Some countries, such as France, have made such reporting mandatory.However, the measurement of social and environmental performance is difficult and new measurementtechniques need to be developed.


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Many large companies now produce annual reports that cover sustainable development and CSR issues, andthese reports are often externally audited. However, there is no common template for the reporting and the styleand the evaluation methodology varies between companies (even within the same industry). Critics oftencomment that some of these reports are little more than a PR exercise, for example in the case of tobaccocompanies.

A survey carried out by Dutch accounting firm KPMG International found that 52% of the largest 250 firms of the Fortune 500 published a report on CSR in 2005, up from 45% in 2002. The survey identified significantregional variation, however, with as many as 80% of Japanese firms publishing CSR reports, 71% in the UK,41% in Canada and only 32% in the US. There were several reasons cited by companies for publishing CSRreports, including increased shareholder value or market share, ethical considerations and motivating orrecruiting employees.

Protecting a nation's health

Another dimension has recently been added to CSR – that of consumer health protection. Some believe it is theresponsibility of companies, as well as governments and consumers themselves, to attempt to control people'slevels of smoking, irresponsible drinking and over-consumption of fatty foods.

With regard to companies that may be partly responsible for putting people's health at risk, similar principlesapply. Private companies are responsible to their shareholders, who want the company to grow in terms of salesand profits. However, in doing so there may be a conflict with the responsibility a company has to the health andwelfare of its customers. The question is, should the large food, drink and tobacco companies, which have aresponsibility to develop new products, market them and generate profits for their shareholders, do so at theexpense of the health of those who consume their products?

Many businesses claim to have a socially responsible code of practice that they adhere to, as well as an ethicalstance to their activities, but may still be contributing to putting public health at risk. For example, foodsmarketed to children may claim to have no artificial colourings, preservatives or GM ingredients, but may befilled with sugars and salts which contribute to obesity, heart disease and high blood pressure.

Many would agree that companies themselves should take some level of responsibility, but the debate currentlycentres around how much responsibility companies should take, as opposed to the level of responsibilityassumed by governments, schools, parents or children themselves.

If companies themselves do not act, then governments may be forced to intervene in terms of legislation orregulation. However, in doing so they may risk the accusation of being a "nanny state", dictating whatconsumers should eat, drink, and when and where they should smoke. Examples of such a policy include thebanning of vending machines from schools, or bans on smoking in public places. Governments may also passlegislation that forces businesses to give clearer information on packaging to help consumers make moreinformed choices about what they buy. However, such legislation would impose additional costs on businessesand may ultimately put up the price of the product to the consumer.

CSR or PR?

Some commentators are cynical about corporations' commitment to CSR and sustainable development, claimingthat the idea of an "ethical company" is an oxymoron. The economist Milton Friedman, for example, argues thata corporation's principal purpose is to maximise returns to its shareholders, and that CSR is not compatible withthis. Others believe that the only reason corporations put in place social projects is to gain commercial benefitfrom raising their reputation with the public or with government. Opponents of CSR argue that overallimprovements in health and living standards in third world countries has only been made possible due to themarket-orientated policies of large companies, which offer better pay and conditions than local businesses.

CSR has also been seen to damage a company's reputation, in cases where it is perceived as misleading. Forexample, Shell has a much publicised CSR policy and was a pioneer in triple bottom line reporting, but wasinvolved in 2004 in a scandal over the misreporting of its oil reserves which seriously damaged its reputationand led to charges of hypocrisy. Similarly, a report by a group of NGOs criticising BAT in 2004 stated that "in

Nigeria, Uganda, Pakistan, Kenya, Brazil and Russia, BAT advertises itself as a good corporate citizen, whileaggressively marketing its cigarettes to the youth and female market".


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Case study: PepsiCo's combined CSR/financial report – how effective is it?

PepsiCo has been praised by ethical groups for including a substantial corporate responsibility component intoits annual financial report for the second consecutive year in 2005. Such combined reporting is rare among UScompanies, and illustrates PepsiCo's efforts to communicate all aspects of its performance to investors and

stakeholders. However, PepsiCo does has been criticised for not directly addressing the association of itsproducts with obesity in its CSR report, despite the fact that many of its products are sodas or snack foods thatare high in fat, sugar or salt.

Lobbyists demand that PepsiCo exhibit more openness on the contribution of its product to healthy living,perhaps by including a fact-based discussion of the success of the company's "Smart Spot" icon and "Energy-Balance" initiative, its position on company versus consumer responsibility in managing health, and its stanceon obesity lawsuits.

Advertising – especially that related to children – is given little coverage in the CSR report. Although PepsiCocites its policy of taking "special care" when making decisions about advertising directed at children, it providesno specific explanation of ad content formulation. Furthermore, the report lacks any descriptions of companypolicies to avoid marketing junk food to children while their reasoning faculties are still undeveloped. Ethical

groups argue that, given how important this issue is to a major stakeholder group, that of parents, PepsiCoshould rethink its reporting approach in this area.

It seems therefore, that PepsiCo is still being very selective about that information it provides to consumers andstakeholders, in order not to damage its reputation further.

Behind-the-scenes lobbying

According to a report published by WWF and the strategy consultancy SustainAbility in 2005, companies mayportray themselves to be responsible in their corporate communications to the public, but can privately doeverything in their power to lobby governments in order to slow public policy progress towards certain health orsustainability issues. For example, BAT has been publishing CSR reports since 2002 claiming that it is doing itsbest to prevent youth smoking and warn the public about the dangers of smoking. However, according to the

lobby group ASH (Action on Smoking and Health), top BAT executives fought to block the WHO's Framework Convention on Tobacco Control (FCTC), and also used support for AIDS prevention in Africa to try to winpolitical influence and "relegate" tobacco as a health issue. Furthermore, a report by The Guardian newspaper in2002 claimed that BAT had been paying a middleman up to £250,000 a year to lobby countries to rejectinternational attempts to put stronger health warnings on cigarette packs, reduce the levels of tar and nicotine incigarettes and increase tobacco taxes.

In the case of the "junk food giants", these companies are accused by pressure groups of pushing governments todefend their interests, while seeming on the surface to care about consumers' concerns and be doing their best toaddress issues such as childhood obesity. In the US, especially, sceptics claim that the US government alwayscomes down on the side of the big industry players, due to their financial power. Indeed, an article published inthe opinions journal "The Nation" cites the fact that top managers of Coca-Cola, PepsiCo, Nestlé and Altriawere among the largest financial backers of the Bush/Cheney campaign.

In 2003, when California lawmakers tried to ban the sale of sodas in schools, heavy lobbying from the sodaindustry resulted in an exemption for high schools (where most soda is sold). In August 2004, Californialegislation that would have set nutrition guidelines on foods sold in schools was narrowly defeated, despitehaving the support of 80 health and education organisations, thanks to last-minute lobbying by the snack foodindustry.

It was also reported that during the reauthorisation of the children's nutrition programmes by the US governmentin 2004, the food industry managed to quash a proposal by one senator to make an amendment to the children'snutrition programmes moving the guidelines from the USDA to the comparatively more independent Institute of Medicine. The industry also won its lobbying effort to eliminate a recommendation for sugar intake from thefederal guidelines, although the guidelines do advise consumers to eat foods with "few added sugars".

Some sceptics even go as far as suggesting that companies are using bribery to improve the image of junk foods.For example, one article reported that less than a month after Cadbury Schweppes gave a multimillion-dollar


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grant to the American Diabetes Association, the association's chief medical and scientific officer claimed thatsugar has nothing to do with diabetes or with weight.

3. HEALTH AND SAFETY ISSUES

3.1 Smoking

Smoking has been linked to lung cancer, emphysema and other breathing disorders. Second-hand smoke canalso cause cancer and further inhibit those with asthma. The WHO estimates that current smoking trends can seeapproximately 10 million deaths worldwide each year by 2025.

Analysis of smoking patterns over the last five years reveals that levels appear to be stable or declining themajor developed markets, while continuing to increase in emerging markets such as China, Russia, India andSouth Africa. In some countries, such as Vietnam, Turkey, China and South Korea, smoking is a way of life andconsidered a male activity. In China and Russia, smoking levels are alarmingly high, at almost 44% and 42% of the over 15s population respectively in 2005.

The US now has one of the lowest levels of smoking prevalence in the world, at an estimated 17.5% in 2005.The decline from 19.1% in 2000 can be attributable to such factors as increased federal and state taxes, agrowing awareness of the dangers of tobacco use, smoking restrictions and a reduced social acceptance of smoking.

Other major European markets also saw a decline in smoking levels over the review period, including Spain,France, the UK, Italy, Germany and Sweden. As in the US, driving factors for reduced smoking levels havebeen rising prices and growing health concerns. On the UK, successive governments have been very active overthe last two decades in educating the population on the dangers of smoking and promoting the use of nicotinereplacement therapy (NRT), which has helped increase success rates for quitting.

What is still worrying is that while overall smoking levels in Europe have fallen or stagnated, there has been agrowing number of female smokers, and also smokers in younger age groups. In Germany, for example, overthe last 50 years the average age at which females start smoking has dropped from 22 to 14. This is one of themost important issues for cigarette manufacturers to deal with.

Table 1 Smoking Levels in Selected Markets 2000-2005

Smoking prevalence in population aged 15+2000 2001 2002 2003 2004 2005

China 41.7 42.1 42.6 42.7 43.0 43.6Russia 42.2 41.7 41.5 41.2 41.5 41.9India 36.2 36.2 37.2 37.3 38.0 38.0South Africa 34.9 35.5 35.8 36.2 36.5 36.6Brazil 33.3 33.5 33.2 33.1 32.9 32.9Japan 34.3 33.6 33.4 33.0 32.7 32.9Netherlands 32.4 34.5 33.5 32.9 32.8 32.7Spain 34.2 34.4 34.4 34.6 34.5 29.2Poland 32.0 32.0 32.0 28.7 28.4 28.4France 27.0 25.8 25.4 25.7 25.4 25.5UK 27.0 27.0 26.6 25.4 24.8 25.3Italy 24.4 24.1 23.5 22.5 22.6 22.0Germany 34.5 32.4 34.6 34.8 32.5 31.7Canada 20.9 21.3 20.8 20.5 20.5 20.8Australia 22.5 21.8 21.9 21.1 21.3 20.8Sweden 18.9 18.9 17.8 18.4 18.0 17.8US 19.1 19.0 18.7 18.1 17.7 17.5Source: Euromonitor International


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3.2 Irresponsible Drinking

Action against high numbers of road deaths

The very high number of annual road deaths around the world is currently a major concern for the WHO, which

began a campaign to lower these figures in March 2004. One factor in this is the significant number of deathsand injury caused by drink-driving, and a number of countries including the UK, France and Brazil haverecently been actively promoting their resolve to reduce the problem.

This has not proved popular with some drink manufacturers, and in France wine-makers have vociferouslyprotested against the strict enforcement of anti drink-driving legislation, which they blame for a dramaticreduction in sales of wine in restaurants since late 2002.

The fact that such campaigns have failed in the UK means that there is still some way to go before drink-drivingis effectively tackled at both national and global levels. However, it is likely that changing attitudes towards theunacceptability of drink-driving will prevail in the medium to long term, which may well have a similarlynegative effect on on-trade sales as those witnessed in France.

Binge-drinking of particular concern

The effects of alcohol-related crime and violence are of great concern to several governments, especially in theUK, where the problem of binge-drinking (commonly defined as the consumption of 11 or more drinks on oneoccasion) is particularly pronounced.

Medical opinion is in agreement as to the benefits of moderate versus binge levels of drinking, and internationalguidelines for safe drinking levels have been published and widely promoted. In addition to the ensuing violenceand social disruption caused by binge-drinking, not to mention lost working days, it is very harmful to the body,forcing it to deal with very high levels of toxins over a short period of time. It is of particular note that binge-drinking is most prevalent amongst younger drinkers, leading to a call from some researchers to raise thedrinking age in order to offset the phenomenon.

Once restricted to a male pastime, binge-drinking is becoming increasingly common amongst women, andalcohol abuse amongst women in general is on the rise. Recent UK-based research estimates that in the 18-25year-age group, alcohol abuse rose by around 32% in men and 70% in women between 1991 and 2003. Inaddition to other health concerns surrounding binge-drinking, this puts women at a higher risk of sexual assaultand unwanted pregnancy, the results of which will be felt by society in the short to medium term.

Case study: Binge-drinking in the UK

Binge drinking and alcohol-related crime are two of the most high-profile problems in the UK. Consequently,the British government introduced a package of measures to deal with alcohol-related crime and released theNational Alcohol Harm Reduction Strategy for England in March 2004.

According to Government statistics, alcohol is the cause of 44% of violent crime and 70% of weekend night

admissions to casualty. Alcohol-related illnesses cost the NHS £1.7 billion a year and around 17 millionworking days are lost annually because of alcohol abuse, costing the UK economy £6.4 billion. Furthermore,additional costs of cleaning up the mess caused by alcohol-imbued people, either through damage to people orproperty, is estimated at over £7 billion a year.

Binge-drinking is a particular problem in city-centres, where saturation of demand has led to operatorsincreasingly fighting to undercut each other and employ fierce promotional activity to maintain their shareagainst competing outlets, including irresponsible marketing, price promotions and an abundance of happyhours.

However, there has recently been a move towards a more responsible approach to drinking from within the pubindustry. In April 2004 the pub chain J D Wetherspoon abandoned its two-for-one promotions, reduced thenumber of alcoholic units in its cocktail pitchers from six to four and re-priced its spirits measures so that adouble measure is now equal in price to two single measures. To strengthen this approach, the prices of its soft


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drinks have also been reduced. The company stated that it hoped to stop tempting customers into binge-drinkingthrough incentivising larger drink orders.

The Licensing Act 2003, which came into effect in January 2005, was one attempt to tackle the problem. Thisallows flexible opening hours and the potential for pubs and clubs to be open 24 hours a day, seven days a week.

The government argued that this would encourage a more relaxed drinking culture by avoiding the tendency tobinge drink in advance of closing time, and to avoid the potential problems that can arise when a number of licensed premises send all their patrons onto the streets at the same time. Furthermore, authorities in citiesblighted by late-night violence, including Nottingham, Newcastle and Westminster councils, have alreadyintroduced a city-centre block on new premises opening, except in specific circumstances.

Opponents of extended licensing hours believe that the problem will only be exacerbated, with street violenceprolonged over a longer period. Furthermore, later closing times are still not supported by later availability of public transport, one of the key issues which could prevent people from loitering on the streets and the violencethat is associated with this loitering. Until these factors are tackled head on, health problems and crimeassociated with alcohol consumption are set to continue regardless of whether opening hours are flexible orrestricted.

It is expected that operators will increasingly work together to play a proactive role in controlling the problem of binge drinking. As well as efforts by pub chains such J D Wetherspoon to reduce promotions, large drinkscompanies such as Diageo are also becoming more active in encouraging sensible drinking. In 2004, thecompany launched a television advertising campaign to support its Smirnoff brand, which included the strapline"Knowing when to stop is a good thing", and further national advertising campaigns were launched in February2006.

Diseases caused by alcoholic drinks consumption

Increasing the risk of liver disease and cancer are two of the largest health concerns facing regular, long-termand heavy drinkers. It is generally accepted that the prolonged excessive consumption of alcohol directlyincreases the incidence of aero-digestive tract cancers (mouth, throat, larynx and oesophagus). Drinking hasbeen associated with a modest increase in the risk for breast cancer.

Chronic liver disease and cirrhosis continue to be prevalent in a number of countries, and are responsible for agreat number of deaths each year. In some countries where unrefined alcoholic drinks are commonly consumed,such as within Eastern Europe, mortality rates are very high. This is also the case within more affluent WesternEuropean countries, whose rich, fatty diets contribute to damaging the liver.

Russia has the most serious problem of alcoholism, which is increasing annually. By 2005, there were almost 53deaths from chronic liver disease and cirrhosis per 100,000 inhabitants. This is partly due to the prevalence of bootleg and poor-quality alcohol, and for this reason, president Vladimir Putin called for the creation of a statemonopoly on vodka and spirits distribution in 2005.

Table 2 Death Rates from Chronic Liver Disease and Cirrhosis by Select Market 2000-2005

Deaths per 100,000 inhabitants2000 2001 2002 2003 2004 2005

Russia 20.2 26.5 31.2 36.5 44.4 52.6Mexico 25.3 24.8 24.5 24.1 23.7 23.2South Africa 12.0 13.4 14.9 16.4 18.3 20.1Germany 20.9 20.3 19.8 19.2 18.8 18.1Czech Republic 18.0 17.7 17.5 17.2 16.8 16.6France 15.6 15.3 15.0 14.7 14.5 14.2Poland 14.3 14.6 14.2 14.0 14.0 13.8Finland 13.0 13.0 13.2 13.4 13.4 13.6UK 10.2 10.7 11.1 11.6 12.0 12.5Spain 14.4 13.7 13.0 12.3 11.8 11.1Japan 11.2 11.1 11.0 10.9 10.7 10.5

China 10.5 10.6 10.0 9.9 9.7 9.5India 9.6 9.3 9.5 9.4 9.4 9.4Sweden 7.0 7.4 7.8 8.1 8.5 8.9


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Canada 7.1 7.1 7.1 7.1 7.1 7.1Australia 5.9 6.0 6.0 6.1 6.1 6.2Netherlands 5.3 5.2 5.2 5.1 5.0 5.0Source: WHO/Euromonitor International

3.3 Over-consumption of "junk Foods"

Junk foods blamed for obesity

The growth in consumption of snack foods, fast food and soft drinks that are high in sugar and fats has beenblamed for the growing problem of obesity, especially in children. For example, it has been found that one canof regular Coke contains about ten teaspoons of sugar and 150 calories. It has even been suggested that low-calorie drinks may do more harm than good for people trying to lose weight. Findings, published in theInternational Journal of Obesity in 2004, suggested that the "artificial" sweeteners found in diet soft drinksconfuse the brain's ability to regulate body weight and could encourage people to over-eat. The study found thatthe body's natural ability to regulate food intake and body weight could be weakened if and when therelationship was weakened by "artificial" sweeteners.

However, manufacturers and fast food operators have been at pains to point out that the problem of obesity isnot only due to higher intake of unhealthy foods, but also due to increasingly sedentary lifestyles, as childrenspend more time in front of the TV, internet and games consoles, and not enough time doing sport or otheractivities.

Children at risk

Technically speaking, the problem of obesity occurs as a result of increased consumption of more energy-dense,nutrient-poor foods with high levels of sugar and saturated fats, combined with reduced physical activity.Obesity is a significant contributory factor in chronic health conditions, such as heart disease, type 2 diabetesand certain forms of cancer. Other, less dangerous conditions associated with obesity include osteoarthritis andhypertension. In the US, the Department of Health and Human Services estimates that obesity is a factor insome 300,000 deaths per year.

The common measure of obesity is the body mass index (BMI), defined as the weight in kilograms divided bythe square of the height in metres (weight kg/height m2). A BMI over 25 is defined as overweight, and a BMI of over 30 as obese. According to the WHO, obesity has reached epidemic proportions globally, with more than 1billion adults overweight, of which at least 300 million are clinically obese.

Childhood obesity is a particular area of concern. Researchers have shown an association between obesity inchildhood and a prevalence of high blood pressure, diabetes, respiratory disease, and orthopaedic andpsychosocial disorders in later life. In countries with a fairly severe incidence of childhood obesity, such as theUS and the UK, this reflects a youth food culture increasingly centred around processed and fast foods that arehigh in fat and salt content.

US has highest rates of obesityThe US has the world's highest obesity rate, with 34% of the population of over 15 years old recording a BMI of 30 or more in 2005. Rising obesity is of particular concern among children and adolescents in the US. Assporting participation has fallen, and hours spent in front of the TV have climbed, the inevitable lure of junk food for the young has grown. The food industry has faced mounting criticism from politicians and parentsconcerned with the effect of food advertising on children's consumption habits. In 2000, 16% of US adolescentswere overweight, and among the poorest teenagers and those of African American and Latino origin, this figurerises dramatically.

Perhaps surprisingly, the emerging markets of Saudi Arabia and South Africa ranked second and third in termsof obesity levels, at 28% and 27% of the population, respectively, in 2005. With regard to Saudi Arabia, this hasresulted in a much higher incidence of related disorders, such as diabetes Mellitus, hypertension and

hypercholesterolaemia, which were practically unheard of in the country 20 years ago. The situation is partlydue to the oil boom of the 1970s and early 1980s, which caused disposable incomes and leisure time to soar, andled to a trend towards self-indulgence, but it could also been linked to the rapid rise and popularity of American-


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style fast food chains in Saudi Arabia As female pupils are not encouraged to participate in active sports, and donot often go out to work, it has been suggested that the higher level of obesity in female Saudi Arabians stemsfrom not enough exercise.

The UK, Australia and Germany all had obesity rates of over 20% in 2005. Since 1980, the prevalence of

overweight and obese people has almost trebled in the UK, and a small but growing number of people fall intothe "morbidly obese" category with BMIs above 40. Again, the number of overweight and obese children andadolescents is of particular concern in the UK. By 2020, it is predicted that 63% of adult women and 71% of adult men will be overweight or obese.

Asia-Pacific benefits from better diet

The lowest rates of obesity are recorded in Asia-Pacific, due to more healthy diets in this region. Nevertheless,obesity is a growing problem in the region, due to the infiltration of Western-style processed foods, as well asless active lifestyles as a result of the introduction of more sophisticated technology and higher disposableincomes. In China, the problem of obesity is concentrated at present in urban areas, and it is hoped that thegrowing health awareness in China will stem its spread.

Table 3 Obese Population in Selected Countries 2000/2005

% of population aged 15+2000 2001 2002 2003 2004 2005

US 27.6 28.3 30.9 32.3 33.7 34.2Saudi Arabia 26.7 27.0 27.4 27.7 28.0 27.9South Africa 20.8 21.5 22.1 23.0 25.4 26.6UK 20.3 22.3 23.0 24.5 25.9 25.0Australia 21.5 21.6 22.0 22.9 23.1 23.6Germany 16.8 17.9 19.0 20.1 20.5 20.2Mexico 20.2 20.5 20.0 20.0 19.8 19.8Russia 18.0 18.0 17.5 17.5 17.5 17.3Canada 14.8 14.9 15.2 15.7 16.0 15.8France 9.0 10.0 12.6 14.5 15.2 14.3Poland 12.2 12.5 12.7 13.0 13.3 13.6Netherlands 9.1 10.8 11.0 11.3 12.5 12.3Spain 12.0 12.0 12.0 12.2 12.4 12.1Sweden 10.8 10.9 11.0 11.1 11.1 11.8Argentina 11.2 11.3 11.5 11.6 11.7 11.6Brazil 11.1 11.2 11.3 11.4 11.5 11.5Italy 8.6 9.0 9.2 9.3 9.6 9.8India 5.3 5.4 5.3 5.4 5.4 5.4Hong Kong, China 5.2 5.2 5.2 5.2 5.2 5.2China 4.1 4.2 4.3 4.4 4.5 4.7Japan 2.1 2.4 2.4 2.6 2.7 2.5South Korea 2.4 2.5 2.5 2.5 2.5 2.4Source: Euromonitor International Note: Obese population = BMI 30kg/sq m or more

Cancer links

In addition to accusations of contributing to the growing rate of obesity among children, carbonated drinks havealso been linked to an increased risk of oesophageal cancer. In 2004, at a conference of cancer andgastrointestinal experts, it was announced that researchers in the US had found a strong correlation between theincrease in per capita consumption of carbonated soft drinks in the last 50 years and the rise in oesophagealcancer in the US. Though these findings could merely be a coincidence, the research claimed to have foundsome medical support for its suggestion. Carbonated soft drinks cause the stomach to distend, which in turncauses the gastric reflux associated with oesophageal cancer.

Case study: The Benzene Scare


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The latest scare to hit the soft drinks industry on both sides of the Atlantic is that benzene has been found insome carbonated drinks. Benzene, a known carcinogen, can be formed when sodium benzoate and ascorbic acid(vitamin C) react together. Benzene has been linked to leukaemia and other cancers of the blood, and is alsofound in pollutants such as car exhaust fumes. Sodium Benzoate is used in drinks because of its strong ability tokill off bacteria, and the preservative's benefits are considered to outweigh the risks. Studies show that benzene

levels would not rise significantly at room temperature, but could rise under extreme conditions.The US Food and Drink Administration (FDA) was alerted to the problem by an independent laboratory in NewYork in early 2006. The lab found some soft drinks with benzene levels several times above the WHO's 10 partsper billion (ppb) limit for drinking water. The FDA water limit is half that, while safety bodies in the EU use alimit of just 1ppb.

The American Beverage Association (ABA) pledged to "use every means necessary" to make all soft drinksmakers aware that two common ingredients can react together to form benzene in drinks, but claims that suchlevels pose little health risk to consumers, since people could get more benzene from the air they breathed.Coca-Cola stated that the major manufacturers have learnt to control benzene formation in drinks containingascorbic acid and sodium benzoate. It is thought that Cadbury Schweppes exposes drinks to heat in an incubatorfor a set period of time to monitor formulations. Cadbury, alongside Australian drinks group Koala Springs,

originally alerted the industry and FDA to a problem with sodium benzoate and ascorbic acid back in 1990. Italso then led industry testing for benzene, before it and others reformulated some of their drinks.

It is reported that more than 1,500 soft drinks containing sodium benzoate and ascorbic acid or citric acid havebeen launched across Europe, North America and Latin America since January 2002.

The UK's FSA also carried out tests in the light of the US findings, and found that benzene was present inBritish soft drinks at eight times the level permitted in drinking water. The British Soft Drinks Associationinsists the levels produced pose no risk to health (which begs the question, why are they considered a risk indrinking water?), claiming that someone living in an urban city consumed, on average, 400 micrograms of benzene from exhaust fumes in a normal day.

However, soft drinks companies may suffer a loss in sales due to the adverse publicity caused by the findings,

and will need to convince the public that their products are safe, or reformulate them altogether, if they want tobe seen as socially responsible.

Other adverse effects

Junk foods such as confectionery and fizzy drinks have also been linked to problems such as tooth decay, lowerlevels of concentration and hyper-activity. In the UK, it is estimated that more than 50% of four to 18 year-oldsnow suffer from tooth decay. Research also suggests that teenagers who consume large quantities of caffeinated,carbonated drinks are more likely to suffer sleep deprivation and lower levels of concentration, while thoseteenagers who drink fewer carbonated drinks showed better results.

4. GOVERNMENT ACTION/LEGISLATION

4.1 Csr Reporting

Lack of legal requirements

There are few national legal requirements in place for CSR report writing, and those that are in place are fairlyvague. An exception to this is France, where a law passed in May 2001, known as the New EconomicRegulations, requires companies to publish social and environmental information in their annual reports. Franceis still the only country to require both social and environmental reporting for all listed companies.

The European Commission released its 2001 Green Paper on CSR, followed by the July 2002 Communicationon the same subject, in order to set out a definition of social responsibility in a European context and to promotemodels of good practice in European enterprises, but no laws have yet been finalised.


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In the UK the Company Law Reform Bill, published in November 2005, requires directors, in their effort topromote the success of the company, to take account of the company's impact on the community, theenvironment, employee interests and relationships with other stakeholders and the company's reputation formaintaining high standards of conduct.

GRI guidelinesThe Global Reporting Initiative (GRI) is an independent institution, founded in 1997, which attempts tostandardise sustainability reporting by way of a set of voluntary guidelines. GRI is an official collaboratingcentre of the United Nations Environment Programme (UNEP), which incorporates the active participation of representatives from business, accountancy, investment, environmental, human rights, research and labourorganisations from around the world.

In December 2005 the total number of countries using GRI standards rose to 54. GRI announced that severallarge food and beverage companies had added their reports in the last few months, including Diageo Hellas,Diageo Espana, Diageo/Seychelles Breweries, Inbev, Red Stripe (Diageo Jamaica), and Royal Numico N.V.

4.2 Anti-smoking Measures

WHO framework convention

In response to the WHO's concerns about smoking trends, The WHO Framework Convention on TobaccoControl (FCTC) is the first global health treaty negotiated under the auspices of the World Health Organization.This is an attempt by the WHO to have all countries adopting the same rules regarding tobacco rather thanhaving legislation varying from country to country. The treaty closed for signature on 29 June 2004. It enteredinto force on 27 February 2005. 168 countries have signed the FCTC, and 64 have become Parties to the treaty.

The FCTC commits countries to implement a range of tobacco control measures such as a ban on tobaccoadvertising, inclusion of significantly sized health warnings on cigarette packets, protection of people fromsecond-hand smoke, and the regulation of tobacco products.

This is an attempt by the WHO to have all countries adopting the same rules regarding tobacco. In the face of increased regulation and awareness of the health risks associated with smoking in Europe and America, themultinationals are moving their attention to developing countries.

Framework conventions and protocols are legally binding only on countries that ratify them. The onus will beon national governments to implement the FCTC and protocols. How effective the FCTC will be in reversingthe tobacco epidemic will be determined by the how fully governments implement the obligations contained inthe FCTC.

Key provisions in the treaty encourage countries to:

• Impose comprehensive bans on tobacco advertising, promotion and sponsorship. The FCTC requires allParties to undertake a comprehensive ban on tobacco advertising, promotion and sponsorship within five

years of ratifying the treaty.• Include the placement of rotating health warnings on tobacco packaging that cover at least 30% (but ideally

50% or more) of the principal display areas and can include pictures or pictograms;

• Ban the use of misleading and deceptive terms such as "light" and "mild";

• Combat smuggling, including the placing of final destination markings on packs. Measures required includemarking all tobacco packages in a way that signifies the origin and final destination or the legal status of theproduct, and cooperating with one-another in anti-smuggling, law enforcement and litigation efforts;

• Increase tobacco taxes in the hope of reducing tobacco consumption, especially amongst young people.

The FCTC also contains numerous other measures designed to promote and protect public health, such asmandating the disclosure of ingredients in tobacco products, providing treatment for tobacco addiction,

encouraging legal action against the tobacco industry, and promoting research and the exchange of informationamong countries.


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The next five years will see an expansion in M&A activity by multinationals targeting the few countries notsignatories of the FCTC.

Smoking bans

The introduction of a smoking ban in public places, including bars, pubs and cafés, has gained momentumacross the globe in the past couple of years. The rationale behind this move is to limit the harmful effects of passive smoking, to protect both employees and the public alike, as well to curb smoking where possible. Theultimate aim is to reduce the cost of public spending on health.

Among countries which now have a ban imposed are New Zealand, Canada, Ireland, Norway and Italy, as wellas some states in Australia and the US, including New York and California. Views are divided on whether therewill be EU-wide smoking ban legislation. The EU's Public Health Commissioner called for an EU-wide ban onsmoking in public places in October 2004, but whether this will actually be implemented in the near future isquestionable.

In Spain, one of the biggest tobacco consuming nations in Europe, a ban went into effect on 1 January 2006

banning smoking in the workplace. The new law bans smoking in offices, shops, schools, hospitals, culturalcentres and on public transport.

With regard to the UK, a complete ban on smoking in enclosed public places comes into force on in Scotland on26 March 2006, and one in Northern Ireland 12 months after that. In February 2006, MPs voted overwhelminglyto extend the ban on smoking in all pubs, restaurants, private clubs and most workplaces to England by thesummer of 2007. Offenders are likely to face a fine of £50. Health Secretary Patricia Hewitt believes theextended ban could help 600,000 people to give up smoking. The Bill also proposed to raise the minimum agefor buying cigarettes from 16 to 18.

Difficult business climates in areas where smoking bans are in effect are likely to drive consolidation. Withimproved purchasing power, consolidated chains will force further discounts from brewers and promote cut-price drinks to consumers, luring the public from their homes and off-licence purchases, or away from

competitors. Bars without the offer of food are likely to be most at risk from an outright ban on smoking.

Leading pub chain JD Wetherspoon had announced in 2005 that it would convert around 10% of its pubs to non-smoking outlets, followed by the rest of the chain in May. However, when the government announced itsintention to bring forward the national ban, JD Wetherspoon announced in March 2006 that it would put off itsplans to convert its pubs to smoke-free zones until the total ban was put into place. Sales at the 49 pubs that JDWetherspoon converted into non-smoking outlets fell by almost 8% in the three months to January 2006, ascustomers spent less at the bar and playing on fruit machines.

FDA restrictions

In 1996, the FDA published regulations restricting the sale and distribution of cigarettes and smokeless tobacco.The provisions of FDA's rules included:

• Authority to change the language of the current cigarette health warnings and substantially enlarge theirsize;

• Full disclosure of ingredients added to tobacco products;

• Authority for the FDA to regulate, or ban, terms such as "light" and "low tar";

• Authority for the FDA to mandate changes in the design of tobacco products to protect the public health,including authority to remove harmful ingredients and smoke constituents

• The sale of cigarettes and smokeless tobacco to children and adolescents under the age of 18 is a violationof federal law. The rule requires tobacco retailers to check a photo identification bearing proof of age foranyone 26 years old or younger.

• The minimum package size for cigarette retail sales is 20 cigarettes. This provision further restricts retailersfrom opening cigarette packaging in order to sell individual cigarettes.


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• Vending machines are no longer allowed to sell tobacco products except in locations, such as bars, wherethe proprietor can ensure that no person under the age of 18 is allowed to enter at any time.

• Self-service tobacco displays are no longer allowed in points of sale. The FDA believes this will reduceunder-age theft of tobacco products as well as involving the sales clerks in transactions with young peoplewho wish to purchase tobacco.

Health warnings on tobacco products

US

In the US, the Comprehensive Smoking Education Act of 1984 required that four Surgeon General's Warningsbe rotated on cigarette packages and advertisements. The warnings are: "Smoking causes lung cancer, heartdisease and may complicate pregnancy"; "Quitting smoking now greatly reduces serious risks to your health";"Smoking by pregnant women may result in foetal injury, premature birth, and low birth weight"; and "cigarettesmoke contains carbon monoxide". The warnings were intended to communicate, in plain language, the risks of smoking. In July 2004, the Senate passed a bill that would make the health warnings larger, with more explicitdescriptions of the health damages caused by cigarettes. The House of Representatives must approve the bill forit to become legal.

EU

In May 2001, a directive of the European Parliament and Council regulating tobacco products became law.Health warnings must cover at least 30% of the front and 40% of the back surface of individual packets of tobacco. The following warnings are rotated on the most visible surface: "Smoking kills/smoking can kill"; and"Smoking seriously harms you and others around you". Additional warnings must be printed on the other mostvisible surface of the package, including:

• Smokers die younger.

• Smoking clogs the arteries and causes heart attacks and strokes.

• Smoking causes fatal lung cancer.

• Smoking when pregnant harms your baby.

• Protect children: don't make them breathe your smoke.• Your doctor or your pharmacist can help you stop smoking.

• Smoking is highly addictive, don't start.

• Stopping smoking reduces the risk of fatal heart and lung diseases.

• Smoking can cause a slow and painful death.

• Get help to stop smoking: (telephone/postal address/internet address/consult your doctor/pharmacist).

• Smoking may reduce the blood flow and causes impotence.

• Smoking causes ageing of the skin.

• Smoking can damage the sperm and decreases fertility.

• Smoke contains benzene, nitrosamines, formaldehyde and hydrogen cyanide.

In 2003, the EU halted the branding of cigarettes as "light" or "mild", saying that this misleads consumers aboutthe dangers of smoking.

Australia

In Australia, new regulations came into effect from 1st March 2006, forcing all tobacco products imported andmanufactured for retail in Australia to be printed with new health warning labels, which provide smokers with

information on an expanded range of health effects. In the case of cigarette packs, health warnings most nowoccupy 30% of the front and 90% of the back of pack, with a graphic appearing on both front and back.


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Advertising restrictions on tobacco

The EU and WHO have both specified that the advertising of tobacco should not be allowed. The WHOFramework Convention on Tobacco Control, which came into effect on 27 February 2005, requires that all of the 168 countries that agreed to the treaty ban tobacco advertising unless their constitution forbade it.

EU

Tobacco advertising on television has been banned in the EU since the early 1990s. The European UnionTobacco Advertising Directive took effect in July 2005. This EU Directive bans tobacco advertising in the printmedia, on radio and over the internet. The directive does not include advertising in cinemas and on billboards orusing merchandising. Nor does it include tobacco sponsorship of cultural and sporting events which are purelylocal, with participants coming from only one Member State. A number of EU Member States, includingFinland, Ireland, Portugal and the UK, already have wide ranging tobacco advertising bans in place. Germany,Spain, Luxembourg, Sweden, the Czech Republic, Greece, Slovenia, Cyprus and Hungary had as of August2005 not transposed the Directive into national bills.

US

Tobacco advertising is regulated by the federal Cigarette Labelling and Advertising Act of 1965, but it is alsosubject to further rules and regulations, imposed by the states, the federal government, or voluntarily followedby the industry itself. The Master Settlement Agreement (MSA) places restrictions on tobacco productmarketing, including a ban on all outdoor advertising; transit advertising; the promotion of tobacco products infilms and TV shows; brand name sponsorship of team sports or other events with a significant youth audience;and the use of cartoons in the advertising, promotion, packaging, or labelling of tobacco products.

In 2004, New York attorney general Eliot Spitzer, on behalf of 30 other state attorneys general, alleged thatBrown & Williamson's Kool MIXX campaign, which entailed DJ competitions and merchandise give-aways,violated the MSA by targeting underage teenagers who participate in the hip hop culture. In June, a judge issueda temporary injunction to stop elements of the campaign that appealed to teenagers in these states. Brown &Williamson complied by discontinuing the "House of Menthol" website, the toll free numbers and merchandise

give-aways. The judge allowed the DJ competitions to continue because they took place in adult-only venues.

California increased cigarette manufacturers' responsibility for advertising by holding them accountable forbrands shown in films. Although the MSA outlawed paid product placement of cigarette brands within films,directors still included brands to develop the films' setting. State authorities, in June 2004, asserted thatmanufacturers are obligated under the MSA to ensure that these brand names did not appear in the films.Complying with the authorities, companies asked several film production companies to remove their brands, butthe production companies refused, citing the constitutional right of fair use to protect their artistic vision.Cigarette manufacturers and state authorities admitted that trademark laws and the Constitution prevent themfrom taking legal action, but hope that consistent pressure to remove brands will result in fewer brand beingshown in films.

The corporate tax bill passed by the Senate in 2004 called for FDA regulation of advertising. Cigarette

manufacturers would need FDA approval to label their cigarette as "lights" or "ultra-lights". Additionally, theFDA would only permit black and white advertisements at points of sale to dampen the appeal of cigarettes toteenagers.

Taxation on cigarettes

EU Legislation on Tobacco Taxation sets the following rules on taxation (in the EU Directive 2002/10/ECadopted on 12 February 2002):

• All EU members must apply a minimum excise tax incidence set at 57% of the retail price of the mostpopular price category of cigarettes.

• Tax burden set at € 1.28/pack of 20, equivalent to € 60/1,000 sticks (where burden means actual figure).

Of all the EU accession countries (Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia,Slovenia), only Slovakia and Slovenia's tax incidence is over 50% (still below the EU minimum), and all the


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countries' tax burden is well below that stipulated by the EU. The hikes in taxation, necessary to fall in line withthese directives, have resulted in massive increases in the average retail price of cigarettes across the board, withthe Baltic countries hit hardest.

Whilst reducing tobacco consumption may seem a credible idea, this aggressive policy has significant

consequences as it widens the disparity of unit prices across Europe by imposing a uniform tax increase asopposed to a percentage tax increase. This disparity has strengthened the trade in cigarette smuggling andcounterfeiting.

As a result of such high smoking rates in the accession countries, the practical view is that these hikes intaxation and unit prices will merely facilitate a shift to lower tar cigarettes or to smuggling rather than a drop inconsumption.

There were also tax hikes in the tobacco sector in Germany and France which were not due to tax harmonisationmatters but a misjudged attempt to increase revenues. In France and Germany, large tax increases in 2003 and2004 caused consumers to switch away from duty-paid cigarettes as cigarette volumes collapsed.

Master Settlement Agreement (MSA)

In November 1998, US cigarette manufacturers entered into the Master Settlement Agreement (MSA) to settlehealth care cost recovery and other claims. Provisions of the MSA 1998 agreement included payments of US$206 billion to 46 states over 25 years to reimburse smoking-related Medicare costs, US$1.5 billion over tenyears to support anti-smoking measures and US$250 million to fund research on reducing youth smoking. Inreturn, the US manufacturers would receive immunity to further legal action against them by state authorities.

The MSA has forced tobacco companies to contribute payments to an account where the money is kept in thecustody of a third party in order to cover future tobacco litigation in response to health claims. This has had amassive impact in the industry with the US market seeing price increases as premium brands responded to theimpact of litigation by increasing prices to recoup the costs of the MSA. This could shift consumers towardsdeep discount brands. Recently, a key feature of the US market has been the forcing of major manufacturers intomaking

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