just good business_economist, 2008

Just good businessA special report on corporate social responsibilityJanuary 19th 2008

Corporate social responsibility, once a do-gooding sideshow, is nowseen as mainstream. But as yet too few companies are doing it well,says Daniel Franklin

erly, from helping the poor to saving theplanet. With such a fuzzy, wide-rangingsubject, many companies �nd it hard toknow what to focus on.

Third, the M&S ticker demonstrates thatCSR is booming. Whether through elec-tronic screens, posters or glossy reports,big companies want to tell the world abouttheir good citizenship. They are pushingout the message on their websites and inadvertising campaigns. Their chief execu-tives queue up to speak at conferences toexplain their passion for the communityor their new-found commitment to mak-ing their company carbon-neutral. A sur-vey carried out for this report by the Econ-omist Intelligence Unit, a sister companyof The Economist, shows corporate respon-sibility rising sharply in global executives’priorities (see chart 1, next page).

None of this means that CSR has sud-denly become a great idea. This newspa-per has argued that it is often misguided, orworse. But in practice few big companiescan now a�ord to ignore it.

Beyond the corporate world, CSR is pro-viding fertile ground for think-tanks andconsultancies. Governments are taking anever keener interest: in Britain, for exam-ple, the 2006 Companies Act introduced arequirement for public companies to re-port on social and environmental matters.And the United Nations promotes cor-porate responsibility around the worldthrough a New York-based group calledthe Global Compact.

The Economist January 19th 2008 A special report on corporate social responsibility 1

1

Just good business

IN THE lobby at the London headquartersof Marks & Spencer, one of Britain’s lead-

ing retailers, the words scroll relentlesslyacross a giant electronic ticker. They de-scribe progress against �Plan A�, a set of100 worthy targets over �ve years. Thecompany will help to give 15,000 childrenin Uganda a better education; it is saving55,000 tonnes of CO2 in a year; it has recy-cled 48m clothes hangers; it is tripling salesof organic food; it aims to convert over20m garments to Fairtrade cotton; everystore has a dedicated �Plan A� champion.

The M&S ticker says a lot about the cur-rent state of what is commonly known ascorporate social responsibility (CSR). First,nobody much likes the CSR label. A yearago M&S launched not a CSR plan but PlanA (�because there is no Plan B�). The chiefexecutive’s committee that monitors thisplan is called the �How We Do BusinessCommittee�. Other companies prefer todescribe this kind of thing as �corporateresponsibility� (dropping the �social� astoo narrow), or �corporate citizenship�, or�building a sustainable business�. OneNordic executive glories in the job title ofdirector, accountability and triple-bottom-line leadership. All this is convoluted codefor something simple: companies mean-ing (or seeming) to be good.

Second, the scrolling list shows what avast range of activities now comes underthe doing-good umbrella. It spans every-thing from volunteering in the local com-munity to looking after employees prop-

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AcknowledgmentsIn addition to the people named in this report, the authorwould like to thank the following for their help: Jim Aisner,Mike Barry, Richard Batten, C.B. Bhattacharya, RosanneBonanno, Sheila Bonino, Richard Brophy, Ann Cairns,Richard Cellini, Suzanne Chase, Richard Clarke, David Cur-ran, Ian Davis, Michael Evans, Steve Garnett, Lisa ter Haar,Carin ten Hage, Ajay Khanna, Isabel Kelly, C.S. Kiang, PaulLewis, Simon Lewis, Ernst Ligteringen, Stanley Litow, Dan-iel Litvin, Gareth Lofthouse, Joshua Margolis, RichardMills, Charles Moore, Laura Moustakerski, Dambisa Moyo,Andrew Newbery, Jeremy Oppenheim, Amon Rappoport,Yvonne Ryan, Je�rey Sachs, Jat Sahota, Susanne Stormer,Je�rey Sturchio, Je�rey Swartz, Sandra Taylor and MichaelTo�el.

The feelgood factorHelping others to help yourself. Page 3

The next questionDoes CSR work? Page 4

A stitch in timeHow companies manage risks to theirreputation. Page 6

A change in climateThe greening of corporate responsibility.Page 8

The good consumerBuying ethical is not as straightforward as itseems. Page 9

Going globalCSR is spreading around the world, but in di�erent guises. Page 11

Do it rightCorporate responsibility is largely a matter ofenlightened self-interest. Page 13

1

2 A special report on corporate social responsibility The Economist January 19th 2008

2 Business schools, for their part, are add-ing courses and specialised departmentsto keep their MBA students happy. �De-mand for CSR activities has just soared inthe past three years,� says Thomas Cooley,the dean of New York University’s SternBusiness School. Bookshelves groan withtitles such as �Corporation Be Good�, �Be-yond Good Company� and �The A to Z ofCorporate Responsibility�.

Why the boom? For a number of rea-sons, companies are having to workharder to protect their reputation�and, byextension, the environment in which theydo business. Scandals at Enron, World-Com and elsewhere undermined trust inbig business and led to heavy-handed gov-ernment regulation. An ever-expandingarmy of non-governmental organisations(NGOs) stands ready to do battle withmultinational companies at the slightestsign of misbehaviour. Myriad rankingsand ratings put pressure on companies toreport on their non-�nancial performanceas well as on their �nancial results. And,more than ever, companies are beingwatched. Embarrassing news anywhere inthe world�a child working on a piece ofclothing with your company’s brand on it,say�can be captured on camera and pub-lished everywhere in an instant, thanks tothe internet.

Now comes concern over climatechange, probably the biggest single driverof growth in the CSR industry of late. Thegreat green awakening is making companyafter company take a serious look at itsown impact on the environment. It is nosurprise, therefore, that 95% of CEOs sur-veyed last year by McKinsey, a consul-tancy, said that society now has higherexpectations of business taking on public

responsibilities than it did �ve years ago.Investors too are starting to show more

interest. For example, $1 out of every $9under professional management in Amer-ica now involves an element of �sociallyresponsible investment�, according toGeo�rey Heal of Columbia BusinessSchool. Some of the big banks, includingGoldman Sachs and UBS, have started tointegrate environmental, social and gover-nance issues in some of their equity re-search. True, the �nance industry sendsmixed signals: it demands good �nancialresults above all else, and in parts of the �-nancial world�notably the private-equitypart�scepticism on CSR still runs deep. Butprivate equity itself is having to respond topublic pressure by agreeing to voluntarycodes of transparency.

As well as these external pressures,�rms are also facing strong demand forCSR from their employees, so much so thatit has become a serious part of the compe-tition for talent. Ask almost any large com-pany about the business rationale for itsCSR e�orts and you will be told that theyhelp to motivate, attract and retain sta�.�People want to work at a company wherethey share the values and the ethos,� saysMike Kelly, head of CSR at the Europeanarm of KPMG, an accounting �rm.

Too much of a good thing?Since there is so much CSR about, youmight think big companies would by nowbe getting rather good at it. A few are, butmost are struggling.

CSR is now made up of three broad lay-ers, one on top of the other. The most basicis traditional corporate philanthropy.Companies typically allocate about 1% ofpre-tax pro�ts to worthy causes becausegiving something back to the communityseems �the right thing to do�. But manycompanies now feel that arm’s-length phi-lanthropy�simply writing cheques tocharities�is no longer enough. Sharehold-ers want to know that their money is beingput to good use, and employees want to beactively involved in good works.

Money alone is not the answer whencompanies come under attack for their be-haviour. Hence the second layer of CSR,which is a branch of risk management.Starting in the 1980s, with environmentaldisasters such as the explosion at the Bho-pal pesticide factory and the Exxon Valdezoil spill, industry after industry has suf-fered blows to its reputation. Big pharmawas hit by its refusal to make antiretroviraldrugs available cheaply for HIV/AIDS suf-ferers in developing countries. In the cloth-

ing industry, companies like Nike and Gapcame under attack for use of child labour.Food companies face a backlash overgrowing obesity. And �Don’t be evil� as acorporate motto o�ers no immunity: Goo-gle was one of several American technol-ogy titans hauled before Congress to begrilled about their behaviour in China.

So, often belatedly, companies respondby trying to manage the risks. They talk toNGOs and to governments, create codes ofconduct and commit themselves to moretransparency in their operations. Increas-ingly, too, they get together with their com-petitors in the same industry in an e�ort toset common rules, spread the risk andshape opinion.

All this is largely defensive, but compa-nies like to stress that there are also oppor-tunities to be had for those that get aheadof the game. The emphasis on opportunityis the third and trendiest layer of CSR: theidea that it can help to create value. In De-cember 2006 the Harvard Business Reviewpublished a paper by Michael Porter andMark Kramer on how, if approached in astrategic way, CSR could become part of acompany’s competitive advantage.

That is just the sort of thing chief execu-tives like to hear. �Doing well by doinggood� has become a fashionable mantra.Businesses have eagerly adopted the jar-gon of �embedding� CSR in the core oftheir operations, making it �part of the cor-porate DNA� so that it in�uences decisionsacross the company.

With a few interesting exceptions, therhetoric falls well short of the reality. �Itdoesn’t go very deep yet,� says BradleyGoogins, executive director of the BostonCollege for Corporate Citizenship. His cen-tre’s latest survey on the state of play in

1The big issue

Source: Economist Intelligence Unit, Global Business Barometer,

an online survey of 1,192 global executives, Nov-Dec 2007

Degree of priority given to corporate responsibility, %

0

20

40

60

80

100

Three yearsago

Today Three yearshence

Very high

High

Moderate

Low

Very low

Don’t know

2If only

Source: McKinsey, February-April 2007 survey

of CEOs participating in UN Global Compact

What should your company do to address environmental, social and governance issues?, %

0 20 40 60 80

Fully embed theseissues into:

Performance gap,percentage points

22

27

20

32

What respondentssay their companiesshould do

What they say theircompanies actually do

Global supply-chain management

Investor-relations strategy

Strategies and operations of subsidiaries

Strategy and operations


2 America is called �Time to Get Real�. There is, to be fair, some evidence that

companies’ e�orts are moving in a morestrategic direction. The Committee Encour-aging Corporate Philanthropy, a NewYork-based business association, reportsthat the share of corporate giving with a�strategic� motivation jumped from 38% in2004 to 48% in 2006. But too often cor-porate strategy is not properly joined up.In the car industry, Toyota has led the wayin championing green, responsible motor-ing with its Prius hybrid model, but it haslobbied with others in the industry againsta tough fuel-economy standard in Amer-ica. Surveys point to a big gap between

companies’ aspirations and their actions(see chart 2, previous page). And even cor-porate aspirations in the rich world lag farbehind how much the public expects busi-ness to contribute to society.

According to Mr Porter, despite a surgeof interest in CSR, in most cases it remains�too unfocused, too shotgun, too manysupporting someone’s pet project with noreal connection to the business�. DutchLeonard, like Mr Porter at Harvard Busi-ness School, describes the value-buildingtype of CSR as �an act of faith, almost a fan-tasy. There are very few examples.�

Perhaps that is not surprising. The busi-ness of trying to be good is confronting ex-

ecutives with di�cult questions. Can youmeasure CSR performance? Should you beco-operating with NGOs, and with yourcompetitors? Is there really competitiveadvantage to be had from a green strategy?How will the rise of companies fromChina, India and other emerging marketschange the game?

This special report will look in detail athow companies are implementing CSR. Itwill conclude that, done badly, it is oftenjust a �gleaf and can be positively harmful.Done well, though, it is not some separateactivity that companies do on the side, acorner of corporate life reserved for virtue:it is just good business. 7

WHEN catastrophic �oods hit Bangla-desh last November, TNT’s emer-

gency-response team was ready. Thelogistics giant, with headquarters inAmsterdam, has 50 people on standby tointervene anywhere in the world at 48hours’ notice. This is part of a �ve-year-old partnership with the World Food Pro-gramme (WFP), the UN’s agency that�ghts hunger. The team has attended tosome two dozen emergencies, includingthe Asian tsunami in 2004. �We’re justfaster,� says Ludo Oelrich, the director ofTNT’s �Moving the World� programme.

Emergency help is not TNT’s only of-fering. Volunteers do stints around theworld on secondment to WFP and sta�are encouraged to raise money for theprogramme (they generated �2.5m lastyear). There is knowledge transfer, too:TNT recently improved the school-foodsupply chain in Liberia, increasing WFP’se�ciency by 15-20%, and plans to do thesame in Congo.

Balm for the soulWhy does TNT do these things? �Peoplefeel this is a company that does more thantake care of the bottom line,� says Mr Oel-rich. �It’s providing a soul to TNT.� In a2006 sta� survey, 68% said the pro-bonoactivities made them prouder to work atthe company. It also helps with recruit-ment: three out of four graduates who ap-ply for jobs mention the WFP connection.Last year the company came top in the

Dow Jones Sustainability Index. TNT’s experience illustrates several

trends in corporate philanthropy. First,collaboration is in, especially with NGOs.Companies try to pick partners withsome relevance to their business. ForTNT, the food programme is a good �t be-cause hunger is in part a logistical pro-blem. Standard Chartered, a bank, isworking with the Bangladesh Rural Ad-vancement Committee on micro�nanceand with other NGOs on a campaign tohelp 10m blind people.

Coca-Cola has identi�ed water con-servation as critical to its future as theworld’s largest drinks company. Last Juneit announced an ambitious collaborationwith WWF, a global environmental orga-nisation, to conserve seven major fresh-water river basins. It is also working withGreenpeace to eliminate carbon emis-sions from coolers and vending ma-chines. The co-operation is strictlynon-�nancial, but marks a change in out-look. �Ten years ago you couldn’t getCoca-Cola and Greenpeace in the sameroom,� says Neville Isdell, its CEO.

Second, what used to be local commu-nity work is increasingly becoming globalcommunity work. In the mid-1990snearly all IBM’s philanthropic spendingwas in America; now 60% is outside. Partof this involves a corporate version of thepeace corps: young sta� get one-monthassignments in the developing world towork on worthy projects. The idea is not

only to make a di�erence on the ground,but also to develop managers who under-stand how the wider world works.

Third, once a formal programme is inplace, it becomes hard to stop. Indeed, ittends to grow, not least because employ-ees are keen. In 1996 KPMG allowed itssta� in Britain to spend two hours amonth of their paid-for time on work forthe community. Crucially for an accoun-tancy �rm, the work was given a timecode. After a while it came to be seen as abusiness bene�t. The programme has ex-panded to half a day a month and nowadds up to 40,000 donated hours a year.And increasingly it is not only inputs thatare being measured but outputs as well.Salesforce.com, a software �rm, tries tomeasure the impact of its volunteer pro-grammes, which involved 85% of its em-ployees last year.

All this has meant that straightforwardcash donations have become less impor-tant. At IBM, in 1993 cash accounted for asmuch as 95% of total philanthropic giving;now it makes up only about 35%. But cashstill matters. When Hank Paulson, nowAmerica’s treasury secretary, was boss ofGoldman Sachs, he was persuaded toraise the amount that the �rm chipped into boost employees’ charitable dona-tions. Now it is starting a philanthropyfund aiming for $1 billion to which thepartners will be encouraged to contributea share of their pay. No doubt that is goodfor the bank’s soul.

Helping others to help yourselfThe feelgood factor

1


�THE theological question�shouldthere be CSR?�is so irrelevant to-

day,� says John Ruggie of Harvard Univer-sity’s Kennedy School of Government.�Companies are doing it. It’s one of the so-cial pressures they’ve absorbed.� Threeyears ago a special report in The Economistacknowledged, with regret, that the CSR

movement had won the battle of ideas. Inthe survey by the Economist IntelligenceUnit for this report, only 4% of respon-dents thought that CSR was �a waste oftime and money�. Clearly CSR has arrived.

Mr Ruggie and others claim that the realquestion about corporate responsibilitytoday is �not whether but how�. But thedebate has not entirely vanished, and it isworth pausing to consider some of the ar-guments of those who question the wholepoint of it.

Within companies, the few sceptics stillmatter, especially since they seem to befound disproportionately at the top end ofmanagement. And from time to time thedebate surfaces noisily in public. Last sum-mer, for example, Robert Reich, a formerlabour secretary under Bill Clinton, now atthe University of California at Berkeley,launched a broadside against CSR in hisbook, �Supercapitalism�. The CSR indus-try had learnt to shrug o� criticism from

free-marketeers such as Milton Friedman(whose seminal critique of the concept,�The social responsibility of business is toincrease its pro�ts,� appeared in the NewYork Times Magazine in 1970) or, for thatmatter, this newspaper. But here was acruel cut from a Clintonite.

More importantly, those who doubtwhether CSR is worth having raise pointsthat have a signi�cant bearing on how it isdone. Take three of the main objections:that it encroaches on what should be theproper business of government; that CSR

is a sideshow; and that it involves playingwith other people’s money.

Mr Reich argues that the energy spenton CSR diverts attention from establishingrules that advance the common good�rules that help to prevent oil spills, say, orprotect human rights abroad. In a democ-racy, he says, that should be the job ofelected governments, not pro�t-maximis-ing companies. It is easy to see the poten-tial for a corrupt bargain: lobby groups �ndit more rewarding to put pressure on cor-porate executives because they respondfaster than governments; governments areonly too happy to duck the issue or letbusiness pick up the bill.

In practice, however, it is often the ab-sence of government rules that makes

�rms feel they have to �ll the void�for ex-ample, by cutting carbon emissions or set-ting labour standards. And as businessesgo global, they face a complicated patch-work of rules. Mr Ruggie, who serves asthe UN secretary-general’s special repre-sentative for business and human rights, isparticularly concerned about parts of theworld where con�ict or corruption meansthere is no e�ective government to do therule-setting. Still, it is surely right to keep awary eye on whether the things �rms do inthe name of good citizenship are truly inthe best interests of society as a whole.

The �sideshow� objection takes issuewith the assumption, all too commonamong executives and activists alike, thatthe pursuit of pro�table business is not asocially responsible thing in its own right.Yet there is nothing wrong with makingmoney: more than anything else, that ishow companies do good. The welfare theycreate in the form of jobs, products and in-novation dwarfs anything �rms are likelyto do explicitly in the name of CSR.

In 2004-05 Oxfam, an agency devotedto poverty relief, and Unilever, an Anglo-Dutch consumer-goods company, jointlyconducted a detailed study of the econ-omic impact of Unilever’s operations in In-donesia. The conclusions were eye-open-ing, especially for Oxfam. Unilever inIndonesia supported the equivalent of300,000 full-time jobs across its entirebusiness, created a total value of at least$630m and contributed $130m a year intaxes to the Indonesian government. Thelesson for �rms is that they have been fartoo defensive about their contribution tosociety. If e�orts to do good become a dis-traction from the core business they mayactually be downright irresponsible. Afterall, a socially conscious but bankrupt busi-ness is no good to anyone.

Spending other people’s moneyThe most fundamental criticism of CSR isthat what executives spend on it is otherpeople’s�ie, shareholders’�money. Theymay mean well, and it may give them satis-faction to write a cheque for hurricane vic-tims or disadvantaged youth, but that isnot what they were hired to do. Their job isto make money for shareholders. It is irre-

The next question

Does CSR work?


2 sponsible for them to sacri�ce pro�ts in the(sometimes vain) pursuit of goodness.

Thoughtful practitioners of CSR under-stand this. Executives overseeing the envi-ronmentally minded Plan A at M&S stressthey are running a business, not a greencharity. Marc Benio�, the boss of sales-force.com, is an evangelist for corporatephilanthropy but keeps a clear sense ofpriorities: �First and foremost my share-holders are the most important thing.�

The simple solution is that businessesshould concentrate on the sweet spotwhere initiatives are good for both pro�tsand social welfare. This is the sort of �win-win� situation that executives love to talkabout: the smart thing to do as well as theright thing to do. Green policies currentlyo�er lots of opportunities for win-wins,which is why so many �rms are eagerlyembracing them: cut fuel costs and youhelp both the planet and the bottom line;expand your range of organic food and in-crease your market share. The same logicshould lead senior management, facedwith a bewildering spectrum of sociallyworthy activities, to select those that aremost relevant to their business.

Yet people on both sides of the barri-cades tend to dismiss this argument. Scep-tics say it renders CSR meaningless. If itamounts to nothing more than good man-agement, it does not count. NGO activists,too, often look for some element of sacri-�ce on the part of business, if only to dem-onstrate a degree of moral commitment�without which, they fear, a company’sworthy programmes may disappear withthe next downturn.

Both arguments are too narrow. If cor-porate antennae are more keenly tuned tosocial trends and sensitivities, alertingmanagers to risks and opportunities theymight not otherwise have spotted, somuch the better for business. As for the ac-tivists, they of all people should like the

idea of �sustainability�: if a business bene-�ts from a CSR initiative, it is more likely tolast, and its involvement may be more dy-namic and innovative too.

To be fair, attitudes are changing, bothin business and among NGOs. A growingnumber of companies are working withNGOs, especially those with operationson the ground and a commitment to get-ting things done. Both sides now see CSR

as o�ering what Mr Porter calls �sharedvalue�: bene�ts for both business and soci-ety. Georg Kell, the director of the UN

Global Compact, says that the case for en-gagement has changed from a moral to abusiness one.

On this view, the best form of cor-porate responsibility boils down to en-lightened self-interest. And the more that�rms embracing it are seen to be success-ful�through astutely managing risks andrecognising opportunities�the more en-lightened their leaders will be perceived tobe. But do such policies really help to bringsuccess? If not, the whole CSR industryhas a problem. If people are no longer ask-ing �whether� but �how�, in future theywill increasingly want to know �howwell�. Is CSR adding value to the business?

An inconvenient truthAt present few companies would be ableto tell. CSR decisions rely more on instinctthan on evidence. But a measurement in-dustry of sorts is springing up. Many big�rms now publish their own sustainabil-ity reports, full of targets and commit-ments. The Global Reporting Initiative,based in Amsterdam, aspires to provide aninternational standard, with 79 indicatorsthat it encourages companies to use. Thismay be a useful starting point, but criticssay it often amounts to little more thanbox-ticking; worse, it can provide a coverfor poor performers.

Sustainability rankings and indices ofvarious kinds also help to concentrate cor-porate minds by shaming �rms or helpingthem shine. But they also point to a pro-blem. Two of the best-known indices�theDow Jones Sustainability index and theFTSE4Good�underperform the market.AccountAbility, a British think-tank, ad-mits to the inconvenient truth that its 2007ranking of the Fortune Global 100 compa-nies by their progress on building sustain-ability into their business shows no con-nection with their �nancial performance.

Even so, interest in socially responsibleinvestment (SRI) is on the rise, along withthe general surge in interest in anything todo with climate change. The signs aremany: more executive time spent on man-aging relations with SRI investors; �nan-cial institutions with over $10 trillion un-der management signing up for the UN’sPrinciples for Responsible Investment; an�explosion of interest� in related research,according to Peter Kinder, the president ofKLD Research & Analytics, which special-ises in benchmarks for social investing.

A new, exhaustive academic review of167 studies over the past 35 years con-cludes that there is in fact a positive link be-tween companies’ social and �nancialperformance�but only a weak one. Firmsare not richly rewarded for CSR, it seems,but nor does it typically destroy share-holder value. Might cleverer approaches toCSR in future produce better returns?

�There is no evidence that ESG [envi-ronmental, social and corporate gover-nance] or SRI investing on their own addvalue,� say analysts at Goldman Sachs. Butthey reckon that by incorporating an ESG

perspective into their long-term industryanalysis they can beat the market. Theirmodel, called GS SUSTAIN, includes ESG

analysis as �a good overall proxy for themanagement of companies relative totheir peers�, hence indicative of theirchances of long-term success. But thesefactors need to be put into the context ofcompanies’ �nancial performance and thecircumstances of individual industries. Acompany’s attention to environmental, so-cial and corporate-governance issues isonly one factor among others in determin-ing its long-term success.

The Goldman Sachs model is an in-triguing attempt to capture the complex in-teraction between social-responsibility is-sues and the many other things thatbusinesses worry about in the real world.An integrated view of the role of CSR hap-pens to be what leading companies arestriving for too. 7

3Pros and cons

Source: Economist Intelligence Unit

Which of the following do you agree with?, %

Corporateresponsibility... 0 20 40 60

...is a necessary cost of doing business

...gives us a distinctive position in the market

...is meaningless if it includes things that companies would do anyway

...is a waste of time and money

4The price of virtue

Source: Thomson Datastream

Share prices, January 1st 2003=100

2003 04 05 06 0775

100

150

200

125

175

225

FTSE4Good index

Dow JonesSustainability index

MSCI World index

1


BUSINESS leaders embrace corporateresponsibility for a number of reasons.

Lee Scott, the CEO of Wal-Mart, was con-verted to it by the aftermath of HurricaneKatrina (which showed his company’s fullpotential to serve �not just our customersbut our communities, our countries andeven the world�). Others are lured by theglamour of making pledges at the ClintonGlobal Initiative. For some, though, it ispublic embarrassment and lawsuits thatconcentrate the mind.

Take Yahoo!, a technology companythat ran into di�culties over the jailing oftwo Chinese dissidents after the companyhanded data on them to the Chineseauthorities. In November Yahoo!’s chiefexecutive, Jerry Yang, and its top lawyerhad to listen to Tom Lantos, a congress-man, denounce them as technology giantsbut moral pygmies. The following weekYahoo! reached an out-of-court settlementwith the families of the jailed men.

Trouble seems to come in waves,pounding industry after industry, eachtime for a di�erent reason. It has hit the oilbusiness because of spills and explosions.Mining companies have come under at-tack for collusion with corrupt govern-ments. Clothing companies have facedscandals over the use of sweatshop orchild labour. The petfood industry was pil-loried after cats were killed by tainted im-ports from China. Mattel and other makershad to recall millions of toys made inChina on safety grounds.

Most of the rhetoric on CSR may beabout doing the right thing and trumpingcompetitors, but much of the reality isplain risk management. It involves limit-ing the damage to the brand and the bot-tom line that can be in�icted by a bad pressand consumer boycotts, as well as dealingwith the threat of legal action.

In America, the legal instrument ofchoice (as in the Yahoo! case) is the AlienTort Claims Act, which allows companiesto be taken to court in America for violat-ing human rights abroad. Under interna-tional law only states can be held responsi-ble for violating human rights, butallegations of complicity in state abusecan provide a hook for legal claims againstcompanies. Even if it does not get as far as a

trial, this can be embarrassing and costlyfor companies.

Three years ago Unocal, a Californianoil company, settled out of court (report-edly for some $30m) over allegations ofcomplicity in abuses by government sol-diers against villagers in Burma during theconstruction of a pipeline in the 1990s.However, the company denied anyresponsibility. Another oil company, Talis-man Energy, discovered that being Cana-dian was no protection against a legalclaim in the United States. It was facing alawsuit by the Presbyterian Church of Su-dan alleging complicity in genocide in Su-dan, where Talisman had invested in theGreater Nile Oil Project�even though Tal-isman, under pressure from human-rightsgroups, had sold its stake back in 2002.

Time and again companies fail to seethe problems coming. Only once theyhave had to deal with, say, a lawsuit orstrong public pressure do they start tochange their thinking. The CSR industrybelieves that a broader understanding ofthe world in which they operate can help

companies manage these risks better (and,if they are lucky, grasp some opportunitiestoo). �Much of the work we do is to get bigincumbents to recognise a di�erent fu-ture,� says John Elkington of SustainAbil-ity, a consultancy.

What might the next wave of troublebe? Corporate corruption, perhaps, specu-lates Toby Webb, the editor of Ethical Cor-poration magazine. In South Africa, for ex-ample, corruption is very much part of theCSR agenda. At two of Germany’s biggestcompanies, Siemens and Volkswagen,heads have rolled because of corruptionscandals. Mr Webb reckons this could be-come a much bigger trend over the nextcouple of years.

Chain reactionFor the moment, though, the biggest pro-blem many companies have to deal with issomething that has sprung from rapidglobalisation. It is the risks associated withmanaging supply chains that spreadaround the world, stretching deep intoChina, India and elsewhere. For some, thisis a challenge on a grand scale: Nike’s con-tractor network, for example, involvessome 800,000 workers.

Firms can set standards of behaviourfor suppliers, but they do not �nd it easy toenforce them. Unscrupulous suppliersmay cheat, keeping two sets of records,one for show, one for real. Others, underintense pressure to keep costs low, may cutcorners�allowing unpaid overtime, for ex-ample, or subcontracting work to other�rms that escape scrutiny.

And on top of the need to guarantee la-bour standards and product safety acrossan extended network, a new demand isstarting to emerge: companies have to con-sider the environmental �sustainability�of their suppliers too. So inspection re-gimes are set to intensify, at a time whenaudit fatigue has already become a pro-blem for suppliers. Surveys suggest that atypical garment factory may expect to beinspected 25 times a year. Levi Strauss,Timberland and others in the industry arestarting to collaborate on inspections to re-duce the burden on suppliers.

Each industry has its own speci�c is-sues, but there are some common themes

A stitch in time

How companies manage risks to their reputation

1


2 in how �rms are approaching the risk-management side of CSR. One is to put inplace proper systems for monitoring riskacross the supply chain, including listingwho the suppliers are, having well-estab-lished channels of communicating withthem and auditing their compliance withethics codes. Basic as it sounds, even manybig companies fail to do this: 60% of the2,000 large companies surveyed recentlyby Integrity Interactive, a risk consultancy,said they did not require suppliers to en-force a code of conduct. Only 42% regularlyassessed ethics risk in the supply chain,and just 12% had a web-based portal fortheir suppliers.

Beyond the basics, prudent companiesinclude a CSR perspective when consider-ing new projects. In such cases CSR is not apublic-relations exercise but part of sys-tematic due diligence for new invest-ments. The social and economic impact ofthe �rm’s existing operations is alsoclosely monitored to reduce the risk of abacklash from local communities, activistsor national governments.

Anglo American, a mining company, isamong the most sophisticated in its ap-proach to managing its social impact. It hasdeveloped a �socio-economic assessmenttoolbox� to identify local stakeholders, seehow projects a�ect them and draw upplans to improve the outcome and de-velop trust. The company says this pro-vides a better understanding of local inter-ests and helps it to avoid potentialcon�icts. Last October Cynthia Carroll,Anglo’s CEO, announced at the annualconference organised by Business for So-cial Responsibility in San Francisco that�as a contribution to spreading good prac-tice� it would make the basic version of itstoolkit publicly available.

Involvement in social programmes, es-pecially in poor parts of the world, is anincreasingly fashionable way for a com-pany to burnish its brand and, with luck,protect itself from attack. Which self-re-specting CEO these days wants to becaught doing nothing for Africa? But some-times these programmes also have a clearbusiness rationale. Anglo American, forexample, says the $10m a year it spends onHIV testing and treatment in Africa is start-ing to pay for itself through reduced absen-teeism and longer lives for skilled workers.

The big drugs companies, for their part,were greatly embarrassed by accusationsof ignoring the needs of Africans dyingfrom HIV/AIDS, so GlaxoSmithKline andothers decided to make HIV drugs avail-able for no pro�t. Merck has entered an in-

novative partnership to �ght AIDS withthe Bill & Melinda Gates Foundation andthe government of Botswana, where theproportion of su�erers being treated isnow the highest in Africa. Since 1987Merck has also donated 1.8 billion tabletsto treat river blindness, reaching morethan 60m people a year in Africa, LatinAmerica and the Middle East. All this helpsto quieten the critics. The involvement inemerging markets may even prove a goodinvestment in future growth.

Novo Nordisk, a Danish company thatsupplies a big share of the world’s insulin,has written the �triple bottom line��thatis, striving to act in a �nancially, environ-mentally and socially responsible way�into its articles of association. It reckonsthat having the creed anchored so �rmly ismaking it more alert to both risks andopportunities.

Comfort in numbersBut risk management can be a lonely busi-ness. Mattel’s monitoring of its suppliers issaid to have been state-of-the-art, but thatdid not save it from costly embarrassmentin China. With the best will in the worldand the most energetic e�orts to createcodes, talk to stakeholders and supporthospitals and schools, companies can still�nd themselves uncomfortably exposed,especially as what is expected of them canvary so much from country to country.

The answer, many have decided, is tospread the risk. Groups of them are gettingtogether to agree on codes of conduct�usually within a particular industry, butalso across industries and in consultation

with governments, UN agencies andNGOs. This has become one of the moststriking recent trends in CSR.

The mining industry, for example, hasjoined with governments in the ExtractiveIndustries Transparency Initiative (EITI),launched in 2002 by Tony Blair, then Brit-ain’s prime minister, to tackle the problemof government corruption in resource-richcountries. Britain, America, Norway andthe Netherlands, together with a numberof NGOs and big energy and mining com-panies, have signed up to a set of Volun-tary Principles on Security and HumanRights. The �nance industry has adoptedthe Equator Principles, a benchmark formanaging social and environmental is-sues in project �nancing.

There’s more. Diamond producers en-couraged the Kimberley Process, a certi-�cation scheme to combat trade in blooddiamonds. The Forest Stewardship Coun-cil provides certi�cation for the forestry in-dustry and its products. A group of compa-nies that want to �nd pragmatic ways ofapplying human rights in global businesshave formed the Business Leaders Initia-tive on Human Rights (BLIHR), which nowhas 14 members. Technology companiesin America are working on a code of con-duct on human rights, not least to avoidthe sort of trouble that Yahoo! encoun-tered in China. In Britain the Ethical Trad-ing Initiative brings together retailers,trade unions and NGOs to support cor-porate codes that improve working condi-tions across global supply chains.

Such �multi-stakeholder initiatives�tend to involve companies that have ele-vated CSR to a strategic level. Some initia-tives will not work: sitting down withcompetitors, let alone NGOs, is not easy.But the e�ort can be worth it. When Gapencountered a problem over child labourin India last October, the damage proved a�two-day wonder�, according to MaryRobinson, the president of RealisingRights: The Ethical Globalisation Initiative.She reckons this was due to Gap’s swift re-sponse and its involvement in initiativeslike BLIHR (which she chairs). When Gapjoined BLIHR three years ago it admitted ithad some problems�and found itself win-ning praise for transparency rather thanbeing pounced on for its transgressions.

Whether these initiatives always servewider interests (as opposed to those of par-ticular �rms) is harder to tell. Some compa-nies may bene�t more than others: for DeBeers, for example, the Kimberley Processreduced a threat to the industry and if any-thing increased its own brand’s domi-

5The business case

Source: Economist Intelligence Unit *Up to 3 could be selected

What are the main business benefits toyour organisation of having a defined corporate-responsibility policy?*, %

0 10 20 30 40 50 60

Having a betterbrand reputation

Making decisions thatare better for ourbusiness in the long term

Being more attractive to potential and existingemployees

Meeting ethical standardsrequired by customers

Having better relationswith regulators andlawmakers

Our revenue is higher thanit would otherwise be

1


2 nance. The introduction of more humaneconditions for textile workers in places likeBangladesh risks losing them their jobs un-less productivity can be improved at thesame time, stresses Alex MacGillivray ofAccountAbility, a think-tank involved in amulti-stakeholder initiative called theMFA Forum. As for the EITI, there is someevidence that it has reduced corruption inNigeria, according to Mr MacGillivray,though it may be just shifting the graft toother ministries. Some NGOs wouldprefer hard law rather than the �soft� rulesinvolved in many of these initiatives.

How committed are companies to therules they claim to live by, whether theirown or an industry-wide code? �What

concerns us,� says Daniel Feldman of Fo-ley Hoag, a law �rm with a CSR practice inWashington, DC, �when most corporate-responsibility e�ort is on PR and commu-nications, is that we don’t know whether�rms are actually implementing therules.� Is there a reporting requirement? Isthe CEO keen?

For a few companies that want to beleaders in the world of corporate citizen-ship, the answer to those questions isclearly yes. And even if such companies�rst discovered CSR the hard way, by suf-fering a knock to their reputation, manynow see it as more than just a tool of riskmanagement; they are convinced that itcan be a competitive advantage and a

source of growth in its own right. Nike, for example, came to the subject

in defensive mode: it was attacked in theearly 1990s, when the idea of corporateresponsibility had barely surfaced. NowHannah Jones, the vice-president of cor-porate responsibility (who reports to thechief executive), talks of �return on invest-ment squared�: to investors and to thecommunity. She sees corporate respon-sibility as providing a fresh source of inno-vation. She no longer bothers to attendCSR conferences full of other corporatefolk; these days she prefers to networkwith social entrepreneurs. And like manyin the CSR world she has high hopes formore emphasis on �sustainability�. 7

AL GORE has done a wonderful thing forcorporate bosses. By helping to propel

climate change to the top of the globalagenda, he has opened up a world of newopportunities for them. Opportunities forrhetoric, for a start. The green theme al-lows chief executives to adopt a planetaryperspective. �It’s what survival will beabout in the 21st century,� proclaims Coca-Cola’s Neville Isdell, talking of his com-pany’s plans for water conservation. Overat PepsiCo, Indra Nooyi stresses the impor-tance of companies embracing �purpose�as well as performance, with products that�contribute positively and responsibly tohuman civilisation�.

Beyond the lofty talk, reducing a com-pany’s output of greenhouse gases and en-couraging �responsible� use of resourcescan also mean cutting waste and savingmoney. Whether it is discouraging the useof plastic bags in a supermarket or switch-ing o� a law �rm’s computers at night,there are plenty of quick wins for mostcompanies. This is doubly satisfying�do-ing well and doing good�and therefore ex-tremely popular.

For some companies the gains to behad from cutting waste and improving en-ergy use are very large. United Technol-ogies Corporation (UTC), whose productsrange from aerospace to air-conditioningsystems, has reduced its carbon footprintby 19% over the past ten years even as it hasdoubled its output, according to GeorgeDavid, the CEO. �We’ve had an explosion

of doing more with less,� he says. In 2008UTC is aiming for growth of 10% while cut-ting carbon emissions by a further 5%.

Looking ahead, some companies thinkthe demand for e�cient and clean energyuse is an opportunity not just for savingsbut for growth. Mr David thinks that in 30years’ time conservation and related areascould make up 30% of the company’s busi-ness, from nothing today. DuPont, a chem-icals giant, is starting to set targets for in-creasing revenue from �non-depletable�products and services. At the ClintonGlobal Initiative last September StandardChartered, a bank with big operations inemerging markets, pledged to spend $8 bil-lion-10 billion over �ve years on �nancingrenewable energy projects in Asia, Africaand the Middle East. Peter Sands, the chiefexecutive, says that since enormousamounts of money will have to be de-ployed in this area in the coming years,�we want to be active leaders.�

Sootless in SeattleBut leadership on �sustainability� is noteasy. Some of the companies that setthemselves the goal of becoming carbonneutral by 2010 or 2012 will struggle to �nda way to do it. For those that are seriousabout changing their impact on the planet,it will be something of a voyage of discov-ery. The starting point is to �nd out the sizeof their current carbon footprint. �We �ndwith energy and greenhouse gases, if youstart to measure, people reduce the usage,�

says Linda Fisher, the chief sustainabilityo�cer at DuPont. Measuring is not a sim-ple task, but once a company has a properbaseline it can see what can be changed.Commitment from the top is crucial.

What are the truly committed compa-nies doing? Three examples�an outdoor-goods business, a logistics company andone of the world’s biggest conglomerates�give an idea of what is happening at thecutting edge.

If your business is equipping people foroutdoor adventure, then careful steward-ship of the environment seems a natural.

A change in climate

The greening of corporate responsibility

1


2 Sure enough, outdoor-goods companiessuch as Patagonia (�every day we takesteps to lighten our footprint and do lessharm�) and Timberland (�our love for theoutdoors is matched by our passion forconfronting global warming�) are amongthe most ardent champions of sustainabil-ity. The same goes for Seattle-based REI,America’s biggest consumer co-operativewith over 3m members and 80-plus stores.

As a co-op, REI enjoys the luxury of nothaving to worry about Wall Street’s expec-

tations each quarter. It can think long-term. Four years ago it decided it had toaim to be climate-neutral and brought inconsultants to establish a baseline andhelp produce a plan. The target date is2020, with a one-third reduction by 2009against the 2006 baseline.

REI was shocked to �nd that more thana quarter of its carbon emissions camefrom �ights associated with the adventuretravel it organises, so it started to buy car-bon o�sets for these trips. One-�fth of its

emissions comes from electricity con-sumption, so it shopped around for renew-able sources, such as hydro power inWashington state. It opened a second dis-tribution hub in Pennsylvania to cut en-ergy waste in transport. It also looked atways to reduce greenhouse-gas emissionsfrom employee commuting, which ac-count for about a �fth of the total, so it isproviding incentives for its people to cycleto work. �Our team is really getting granu-lar,� says Sally Jewell, REI’s chief executive.

WHAT’S a label worth? A lot, it seems,when it comes to towels in an up-

market New York shop. In 2005 ABC

Home Furnishings allowed two HarvardUniversity researchers, Michael Hiscoxand Nicholas Smyth, to conduct an ex-periment on two sets of towels. One lotcarried a label with the logo �Fair andSquare� and the following message:

These towels have been made under fairlabour conditions, in a safe and healthyworking environment which is free ofdiscrimination, and where manage-ment has committed to respecting therights and dignity of workers.

The other set had no such label. Over �vemonths, the researchers observed the im-pact of making various changes such asswitching the label to the other set oftowels and raising prices. The resultswere striking: not only did sales of towelsincrease when they carried the Fair andSquare label, they carried on increasingeach time the price was raised.

No wonder companies are keen to ap-peal to ethically minded consumers,whether on labour standards or greencredentials. Timberland, a New Hamp-shire outdoor-gear company, is introduc-ing detailed �Green Index� labels on itsshoes. Sainsbury’s, a British supermarket,now sells only Fairtrade bananas, withthe assurance that poor farmers have re-ceived a decent price, and all its own-brand paper products come from sourcesapproved by the Forest StewardshipCouncil. Tesco, M&S and Wal-Mart haveall launched initiatives that bet on the riseof the ethical consumer.

On greenery, M&S reckons that Britishconsumers divide into four broad groups.About one in ten is passionately greenand will go out of their way to shop ac-cordingly. At the other end of the spec-trum one-quarter are not interested.In-between are those who care but wantgreen consumption to be easy, and thosewho are vaguely concerned but don’t seehow they can make a di�erence (see chart6). In M&S’s view, that represents anopportunity: three-quarters of Britishconsumers are interested in the greentheme in some way.

But even the keenest ethical consumerfaces complicated trade-o�s, and some-times the apparently obvious ethicalchoice turns out to be the wrong one.Surely it must be greener for Britons tobuy roses from the Netherlands thanones air-freighted from Kenya? In fact, astudy at Cran�eld University showed thecarbon footprint of the Dutch roses to be

six times as large because they had to begrown in heated greenhouses.

Consumers are right to be suspiciousof the ethical claims made for many pro-ducts. A recent study of the labels of 1,018products in big stores in North Americaby TerraChoice, an environmental mar-keting agency, found that almost all ofthem were guilty of some form of �green-washing�. They did not tell outright lies,but nor did they tell the whole truth.

A conditional shade of greenJoel Makower, the executive editor ofGreenBiz.com, says that, given a choice,most consumers will be happy to choosethe greener product�provided it does notcost any more, comes from a trustedmaker, requires no special e�ort to buy oruse and is at least as good as the alterna-tive. �That’s a high hurdle for any pro-duct,� he notes.

So shoppers will still �ock to shopsthat sell cheap products of decent quality,without asking how these are made.They will often buy more if a product isattractively presented, never mind thatthe packaging may be wasteful. Andwhen companies try to do the right thing,consumers will not always go along withthem. Airlines that invite their customersto buy carbon o�sets have seen only min-imal uptake.

The lesson for companies is that sell-ing green is hard work. And it is no goodgetting too far ahead of the customer.Half a step ahead is about right, accord-ing to Stuart Rose, the chief executive ofM&S. Much more, and you won’t sell.Any less, and you won’t lead.

Buying ethical is not asstraightforward as it seems The good consumer

6Iffy

Source: Marks & Spencer survey of 25,000 consumers, 2007

British attitudes to green shopping% of total

“Crusaders”11

If it’s easy 27

What difference

can I make? 38

Not interested 24

1


2 The company is also working on thecarbon footprint of its buildings, its use ofpaper, its packaging and the eco-friendli-ness of its products. Together with othermanufacturers, it is looking at eco-sensi-tive materials, which need to be naturalbut also to do the job in hand well. Greenlabelling will follow.

The lesson from REI is that going seri-ously green involves a lot more than set-ting a target date for zero emissions. It re-quires measuring and managing. Thatturns out to be hard, intricate work whichstretches right across a company’s opera-tions, and perhaps beyond. At present, REI

counts the carbon once it owns a product:for example, it takes responsibility for itsown brands’ transport from the factory. Itdoes not include its suppliers’ operationsin its carbon calculations because it has yetto work out how to do it. �But I think that’scoming,� predicts Ms Jewell.

The non-�ying DutchmanYou know a boss is serious when he givesup his private jet, swaps his Porsche for ahybrid Prius and drives rather than �ies allthe way from Amsterdam to Davos. PeterBakker believes that being on top of the cli-mate-change issue is a prime businessneed for TNT, the Dutch logistics companyhe heads. He thinks customers may wellshorten their supply chains to stop ship-ping so many parts around the world byair. Regulators may impose new rules,such as a carbon tax or carbon labelling,which could a�ect TNT’s business model.Investors are asking questions about sus-tainability. �Only those companies thatcan make the shift to manage this as an in-tegral part of the business will be able torespond fast enough,� he says.

Last year Mr Bakker launched �PlanetMe�, a campaign to change the company’scarbon trajectory. TNT’s carbon footprinthas been measured, targets for reducing itwill soon be set and e�orts will be made tohelp employees lead greener lives both atwork and at home. For starters, the travelbudget is being cut by 20% (a saving of�3.2m a year, which more than covers the

�2.8m spent on installing state-of-the-artdesktop video-conferencing systems). In2010 TNT will move its headquarters towhat is designed to be a carbon-positivebuilding that will be producing green en-ergy to spare.

TNT intends to monitor its carbon emis-sions assiduously, giving customers atracker to show CO2 emissions of the ser-vices they are buying. Reporting on emis-sions will follow the same rules as �nan-cial reporting, so there could be warningsof poor performance just as a companymight issue pro�t warnings. Bonusschemes will be linked to this.

But there is no escaping the fact that, asa global transport company with a big �eetof aeroplanes and trucks, TNT churns outgreenhouse gases. In 2006 it produced 826kilotonnes of CO2. To cut down on emis-sions from the trucks, it is introducing hy-brids and electric vehicles. The 44 aero-planes are trickier. They account for half ofall TNT’s emissions, and there is little thecompany can do but try to run these as e�-ciently as possible. It says it is prepared toinvest in promising aircraft technologies.

Its �eet includes two Boeing 747s which�y back and forth between Liège in Bel-gium and Shanghai, accounting for halfthe company’s fuel consumption. �Twoyears ago we didn’t think of climatechange when buying 747s,� says MrBakker. �Today it would be a main item ifwe were considering buying two more.�But would TNT really forgo increasing itsbusiness with China?

The logistics industry provides the ar-teries of globalisation, and TNT’s experi-ence suggests that pressure for moreresponsible strategies on carbon emis-sions will spread through those arteries.Some of TNT’s customers in Scandinavia,for example, have started to inquire aboutthe carbon impact of transporting theirparts. TNT is asking its own suppliers andsubcontractors to be committed to theenvironment too, and selects them withthat in mind.

The list of big companies that have putthe environment or other aspects of CSR at

the heart of their strategy is not very long,but one name usually tops it: GE. In 2005 itlaunched �ecomagination�, a vigorouspush to invest in green technology and ex-pand sales of products and services withmeasurably better environmental perfor-mance. Products range from light bulbs togas turbines to railway and jet engines andhave to o�er a sustainability improvementof at least 10% to be included.

General EclecticLike most such initiatives, ecomaginationis partly a packaging and public-relationsjob, bringing together a number of thingsthe company was doing anyway. Somesay it is not even particularly ambitious,given the gains in energy e�ciency thattechnology is producing across the board.Part of the plan involves a cut in green-house-gas emissions in 2012 of 1% com-pared with the 2004 baseline�not bad fora company that also expects to growstrongly over that period, but hardlystretching. Sure enough, GE is beating itstargets, with emissions already down by4%. There are no targets yet for saving wa-ter (though GE says these are on their way).

Still, GE is big, and ecomagination hasscale. R&D investment in cleaner technol-ogies is to rise from $700m in 2005 to $1.5billion in 2010. By then the company ex-pects revenues from ecomagination pro-ducts to be at least $20 billion.

This is turning out to be a good bet.�We’ve sold out in eco-certi�ed products to2009,� says Bob Corcoran, the vice-presi-dent for corporate citizenship. You can’tbuy a GE wind turbine before 2010. Em-ployees like the green focus and have comeup with initiatives of their own that areworth some $70m a year in energy sav-ings. All this has helped to polish GE’sreputation. The company still gets badmarks for its response to the toxic mess itpoured into New York’s Hudson river longago, but it now has fans among environ-mentalists too.

GE has not forgotten that it is in thebusiness of making money, not doing so-cial work. �No good business can call itself

1


2 a good corporate citizen if it fritters awayshareholder money,� says Mr Corcoran.GE has 6m investors, and �it’s their moneytoo.� The company is simply moving in thedirection in which it thinks social pres-sures will push it anyway.

In doing so, it is also behaving in waysthat would have been hard to imagine afew years ago. It has joined together withother big companies and NGOs to formthe US Climate Action Partnership to lobbyfor national legislation in America to cap

carbon emissions. Europe already has acap-and-trade system, and GE would like amore uniform set of rules across the world.

There is no doubt that the greening ofcorporate responsibility rings a bell withmany companies. They can cuts costs, de-light employees and burnish their brand.By preparing their business for the ex-pected demands of customers and regula-tors they may also be giving themselves acompetitive advantage. But if it is to in-volve much more than public relations, it

will be long, hard work. As companies’claims of green virtue multiply, so will thee�orts by organisations such as ClimateCounts to monitor them and hold them toaccount. Few customers will buy green atthe expense of price or quality, and it isearly days for much of the research and in-vestment in clean technologies. Besides,the demand for sustainability varies great-ly from place to place. Europe and Japanhave mostly been ahead of America. Andin China the dash for growth comes �rst. 7

�THE British brand of corporateresponsibility is seen as the gold

standard,� says Julia Cleverdon, chief exec-utive of Business in the Community,which for 25 years has been championingthe cause in Britain. And it is true that Brit-ain, especially London, has been a hive ofinnovation in CSR since the mid-1990s,thanks to a creative cluster of think-tanks,NGOs, consultancies and inventivebosses. But according to Simon Zadek ofAccountAbility, a think-tank that has beenpart of the cluster, this is also a repeat of afamiliar British business story: superb in-novation, poor implementation.

By contrast, when American �rms getserious about CSR�Wal-Mart on sustaina-bility, for example�the execution is gener-ally impressive. The Japanese, for theirpart, see the roots of CSR in the traditionsof Japanese business, such as shobaido(the way of doing business) and shonindo(the way of the merchant), and Japanese�rms pay a lot of attention to the environ-ment and to relations with local communi-ties. The lead on CSR could even shift fromthe rich world to the big emerging markets,each with its own traditions and priorities.

For global companies this means that aone-size-�ts-all approach to corporateresponsibility may not work. What is rightfor Europe may not be appropriate for In-dia. Such di�erences in priorities (see table7) are bound to grow in importance as theBRIC countries�Brazil, Russia, India andChina�and other emerging markets gainin economic clout and con�dence.

Among the BRICs, Russian companiesseem the least interested in the idea of cor-porate citizenship, but Brazil has a livelyCSR scene. Some 1,300 companies are

members of Instituto Ethos, a network ofbusinesses committed to social respon-sibility. �We are developing a unique pro-cess in Brazil,� says Ethos’s founder, OdedGrajew. Ethos tries to in�uence public pol-icy and corporate behaviour �to establisha socially responsible market�. A few Bra-zilian �rms�such as Natura, a cosmeticscompany, and Aracruz, a pulp and paperproducer�are widely known for their CSR

e�orts. India has a long tradition of paternal-

istic philanthropy. Big family-owned �rmssuch as Tata are particularly active in pro-viding basic services, such as schools andhealth care, for local communities. For therich, who have prospered as the economy

has boomed in recent years, generous phi-lanthropy is also a way of heading o� abacklash against business. A broader cul-ture of ensuring decent working condi-tions has been slow to spread.

One BRIC at a timeChina has become the new frontier for theCSR industry. Ms Cleverdon says Chinesevisitors are piling into her organisation’sLondon o�ces. Aron Cramer, the CEO ofBusiness for Social Responsibility, a SanFrancisco-based lobby group, points outthat his out�t has increased its representa-tion in China from two to ten people overthe past 18 months. Call Mr Zadek on hismobile phone and he answers in Beijing,

Going global

CSR is spreading around the world, but in di�erent guises

7The things that matter

Source: McKinsey survey, September 2007

Which issues will be the most important in the next five years? Select three:

Global rank Issue United States Britain Germany China Brazil

1 The environment 2 1 2 2 1

2 Safer products 5 4 6 3 2

3 Retirement benefits 4 2 1 4 7

4 Health-care benefits 1 5 8 1 8

5 Affordable products 6 3 3 5 3

6 Human-rights standards 8 8 9 9 4

7 Workplace conditions 9 10 4 7 6

8 Job losses from outsourcing 3 6 5 13 13

9 Privacy and data security 7 7 7 6 10

10 Ethically produced products 10 9 10 8 9

11 Investment in developing countries 16 11 14 12 5

12 Ethical advertising and marketing 12 12 16 11 11

13 Political influence of companies 11 14 12 14 14

14 Executive pay 15 16 11 10 15

15 Other 13 13 15 16 12

16 Opposition to freer trade 14 15 13 15 16

2 where he is talking to Chinese think-tanksabout CSR and trade policy.

It is still early days. For Chinese compa-nies that serve the home market, the re-lentless focus on growth leaves little roomfor worrying about the niceties of cor-porate citizenship. And the lack of politicalfreedom means there is no network ofNGOs to persuade them to do more. Yetpressure to take corporate responsibilitymore seriously is nevertheless growing.

From above, the government is startingto make noises about environmentalresponsibilities. From outside come thecodes and inspections of foreign investorsand global companies that want to applytheir ethical standards across their supplychain. And from within, Chinese compa-nies that want to go global themselves arestarting to realise that they will have to payattention to CSR as part of their e�ort togain acceptability and build their brand. Itwas a shock for China National O�shoreOil Corporation to see its plans to buy Un-ocal, a Californian oil �rm, scuppered byAmerican politicians; and, more recently,for PetroChina to �nd itself targeted bycampaigners for disinvestment in Sudan.

The �rst signs of a �edgling corporate-responsibility industry are beginning toappear. A few Chinese companies havestarted to issue CSR reports (�beautifulbooks, not much inside,� says a Chinesecritic). In Shanghai in October 2007, 13 for-eign and domestic companies launchedthe Chinese Federation for Corporate So-cial Responsibility. These are baby steps,but the Chinese are quick learners.

�I would bet that within �ve yearsthey’ll be deeply involved in the manage-ment of standards,� predicts Mr Zadek.�Then they’ll build their own, and they’llbecome exporters of standards.� If so,China may in time begin to challengeWestern ideas of CSR. Mr Cramer reckonsthat Chinese companies will want to rede-�ne corporate responsibility in ways thatsuit their own priorities.

Competing models of CSR are alreadyat work in Africa. Chinese investment ispouring in to secure access to raw materi-als needed for China’s turbocharged econ-omy. The Chinese may show little interestin the rights of workers or opening a dia-logue with �stakeholders�, but they buildroads and other infrastructure. To some Af-rican leaders, this no-strings approach hasits attractions. Western companies, undercloser scrutiny from activists, have to bemindful of codes of behaviour and trans-parent reporting. Sometimes pressurefrom NGOs on Western companies has the

perverse e�ect of forcing them out ofcountries such as Sudan in order to stop al-leged complicity with governmentabuse�only to be replaced by Chinese orIndian companies that do not give a damnabout human rights.

But NGOs can also be a conduit for cor-porate responsibility in emerging markets,working closely with business to reachwhat C.K. Prahalad of the University ofMichigan’s Ross School of Business calls�the bottom of the pyramid�. There is aconvergence of interests between NGOstrying to improve lives in poor communi-ties and companies keen to reach consum-ers in markets with huge growth potential.

Many NGOs have moved beyond act-ing merely as watchdogs to co-operatingwith big companies on joint projects. Andsome, as Mr Prahalad and Jeb Brugmann, asustainable-development specialist, notedlast year in the Harvard Business Review,are setting up innovative joint businessesas an e�ective way of providing servicesand reaching consumers.

They point to examples such as BP’s ar-rangements with NGOs to distributestoves in rural India and ABN AMRO’scollaboration on micro�nance in LatinAmerica with ACCION International, anNGO that is itself beginning to develop amultinational business. �CSR started as away for companies to gather intelligenceabout NGOs and manage their reputa-tions,� they write. �It has wound up pro-viding them with the tools they need topursue business opportunities in un-tapped markets.�

So will in�uence in CSR continue totrickle down from rich countries to poorerones, or could it even be the other wayround? Emerging countries might bridle atsimply importing an agenda from the rich

world, carrying echoes of colonialism.And as more investment �ows to de-veloped countries from Russia, China andthe Middle East, this may colour attitudesin Western boardrooms too. How muchwill sovereign wealth funds care aboutcorporate responsibility?

Amid so much uncertainty, multi-national companies yearn for predictabil-ity and want to see the global playing �eldlevelled, as they are so fond of saying. Yetthey do not want intrusive rules either.When NGOs supported binding globalnorms for �rms’ human-rights respon-sibilities, businesses objected and the ef-fort collapsed. Instead, since 2005 JohnRuggie, the UN secretary-general’s specialadviser on business and human rights, hasbeen carrying out a painstaking consulta-tion with all the parties concerned.

Mr Ruggie is due to make his �nal re-commendations in June. He says he wants�e�ective outcomes, not feelgood out-comes.� For governments, that may meana reminder of their legal responsibility toprotect human rights. For companies, itcould mean further encouragement andgreater accountability for the sort of �softlaw��such as voluntary codes and multi-stakeholder initiatives�that has helped toimprove the behaviour of companies run-ning into trouble for various abuses.

A forest of �gleavesCompanies can select from an extensivemenu of standards and guidelines to re-main up to scratch, on human rights andmuch else. There are guidelines from theILO and the OECD, as well as standardssuch as ISO 14001 (for the environment)and SA 8000 (for human rights). A verysoft �guidance standard� on social respon-sibility, ISO 2600, is in the works.

A soft code that is proving popular isthat of the UN’s Global Compact. To signup, companies need only commit them-selves to ten broad principles�such as pro-moting environmental responsibility andworking against corruption�and report ontheir progress once a year. Yet the compactis toothless. Critics say it just providescover for companies from China and else-where which cheerfully sign up to it andthen even more cheerfully ignore it.

But on one thing Georg Kell, the com-pact’s perky executive director, is no softy.CSR is a child of openness, he says. Cor-porate responsibility in recent years hasbeen driven by globalisation. If marketsstay open, it will continue to spread. Butopenness should not be taken for granted:�The day markets close, CSR is over.� 7


1


THE CSR industry, as we have seen, is inrude health. Company after company

has been shaken into adopting a CSR pol-icy: it is almost unthinkable today for a bigglobal corporation to be without one. Cli-mate change has added further impetus.Investors are taking an ever greater inter-est. New and surprising sorts of co-opera-tion are springing up: with NGOs, withcompetitors, with other companies. Themessage is moving across supply chainsand spreading around the world.

What has helped to make all this possi-ble is globalisation�which has also beenresponsible for much of the generalwealth-creation through which compa-nies, let it not be forgotten, make theirmain contribution to society. A suddenbout of protectionism, which is by nomeans out of the question, could put it atrisk. So activists who press for variousforms of protection should be careful whatthey wish for. An economic recessionwould also be bad news for the CSR indus-try, parts of which might be seen as a lux-ury companies could live without.

But assuming that corporate goodnesscontinues to �ourish, how will thingsevolve? The next wave, some believe, willbe one of disruptive innovation, featuringa new breed of �social entrepreneur� thatwill take over from the established bigcompanies as the driving force. Mr Benio�of salesforce.com reckons that social entre-preneurs have �cracked the code� of thenext generation of corporate responsibil-ity: it will be for-pro�t and self-sustaining.Mr Benio� himself plumbed philan-thropy into his company right from thestart by committing 1% of equity, pro�tsand employees’ time as a contribution tothe community.

The extraordinary wealth-creation ofrecent years has produced a large numberof extremely rich people, many of themfrom the software and �nance industries,who are interested in a new kind of philan-thropy: a smart, capitalist kind. It involvesusing money for maximum impact by in-vesting in potentially disruptive technol-ogies (in the environmental �eld, for exam-ple) and in social enterprises that can bescaled up as required.

This kind of enterprise has several ad-

vantages over established big business. Ithas focus, rather than being a sideline, asCSR often is for large companies. It in-volves people who are using their ownmoney and are interested in measurableresults: �real good� not �feelgood�. Itbrings �nancial rigour as well as an appe-tite for risk, and it can teach the big compa-nies a thing or two about how to measurethe success of social investments.

The sums involved are not trivial. Thatis partly thanks to Bill Gates, who in June

will leave his full-time job at Microsoft towork at his fabulously rich charitablefoundation. This will aim to be givingaway $3 billion a year by 2009, more thanany other foundation anywhere. Moneyalso pours in through innovative charitiessuch as Absolute Return for Kids in Lon-don, which invests donors’ money withentrepreneurs on the ground in develop-ing countries.

The entrepreneurial model of tacklingsocial and environmental problems islikely to stir up the CSR world. It may overtime produce transformative technologiesand creative new business models. But fornow it is still big businesses that can makea di�erence. Large companies will �ndways of working with�and sometimes ab-sorbing�successful social ventures. In thenext few years CSR will be mainly about�how large corporations steer a sustain-able growth strategy in a very complexenvironment�, as Jane Nelson of HarvardUniversity puts it.

Few leaders, many laggardsThis report has looked at some of the com-panies that are doing interesting things,both to manage their risks and to exploitopportunities. But such examples are rela-tively scarce: the same few familiar namespop up again and again. Like most indus-tries, the corporate-responsibility businesshas a handful of leaders, a large number offollowers and many laggards.

You can recognise the leaders partlyfrom the way they are grappling with par-ticularly tricky issues, such as how to ap-ply codes of practice across global supplychains or how best to convey accurateenvironmental information on product la-bels. The leaders typically have a commit-ted CEO who champions the policy, achief o�cer for corporate responsibil-ity�or sustainability or whatever�who re-ports to the boss, and a cross-functionalboard committee to ensure that strategy isco-ordinated throughout the company.Non-�nancial measures of progress oftenplay an important part in the overall as-sessment of the company’s performance.These are companies, in short, that areseeking to �embed� CSR in the business.

Not every company can be a leader, nor

Do it right

Corporate responsibility is largely a matter of enlightened self-interest


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should they all want to be. Being a high-pro�le early enthusiast carries the risk ofoverpromising. First-mover advantagesoon passes. After a while, for example,everybody turns green, and the winnersare the companies with the best execution.One large consultancy advises its big cli-ents to be number two or three on cor-porate responsibility rather than numberone. Thoughtful �rms may pick andchoose across the spectrum of CSR activi-ties where to be ahead and where merelyto comply with the rules.

The followers in the CSR industry aremany. By now they probably produce aglossy report which lists numerous wor-thy activities�too many, in fact, when itwould be better to concentrate on thosethat really work and bene�t the business.The companies concerned may have littleidea whether their carbon-o�set scheme ise�ective or their ethical-purchasing plancosts jobs. Their real motive is public rela-tions, and the telltale sign is that the personresponsible for CSR sits in the corporate-communications department.

And the laggards? There are two types.Companies in the �rst group have simplyfailed to pay much attention to CSR; theyrisk being attacked as �late adopters�.Those in the second group, more cynically,think they can a�ord to ignore CSR, at leastfor now. Perhaps they are in an industrywith a low pro�le, or operate in countrieswhere scrutiny is minimal. They do notmind being viewed as freeloaders by com-petitors who spend time and money ontrying to be good corporate citizens. Overtime, though, this could also be risky ifthey �nd themselves subject to greaterscrutiny or miss out on opportunities.

Doing what comes naturallyOne way of looking at CSR is that it is partof what businesses need to do to keep upwith (or, if possible, stay slightly ahead of)society’s fast-changing expectations. It isan aspect of taking care of a company’sreputation, managing its risks and gaininga competitive edge. This is what goodmanagers ought to do anyway. Doing itwell may simply involve a clearer focusand greater e�ort than in the past, becauseinformation now spreads much morequickly and companies feel the heat.

So paying attention to CSR can amountto enlightened self-interest, somethingthat over time will help to sustain pro�tsfor shareholders. The truly responsiblebusiness never loses sight of the commer-cial imperative. It is, after all, by staying inbusiness and providing products and ser-

vices people want that �rms do most good.If ignoring CSR is risky, ignoring whatmakes business sense is a certain route tofailure.

It is the interaction between a com-pany’s principles and its commercial com-petence that shapes the kind of business itwill be. A company that is weak on bothvalues and commercial competence issimply a bad business. One that has strongvalues but is badly run, without proper at-tention to translating values into pro�ts,will plainly not do well. In contrast, a com-pany that is highly competent commer-cially but does not bother with corporateresponsibility may work just �ne, but itcould also prove increasingly risky. Lastly,a combination of a strong commitment to

CSR and strong commercial competencegives a good chance of success.

If it is nothing more than good businesspractice, is there any point in singling outcorporate social responsibility as some-thing distinctive? Strangely, perhaps thereis, at least for now. If it helps businesseslook outwards more than they otherwisewould and to think imaginatively aboutthe risks and opportunities they face, it isprobably worth doing. This is why some �-nancial analysts think that looking at thequality of a company’s CSR policy may bea useful pointer to the quality of its man-agement more generally.

True, much of what is done in the nameof CSR is nothing of the sort. It oftenamounts to little more than the PR depart-ment sending its own messages to the out-side world. Yet in a growing number ofcompanies CSR goes deeper than that andcomes closer to being �embedded� in thebusiness, in�uencing decisions on every-thing from sourcing to strategy. These mayalso be the places where talented peoplewill most want to work.

The more this happens, ironically, themore the days of CSR may start to seemnumbered. In time it will simply be theway business is done in the 21st century.�My job is to design myself out of a job,�says one company’s head of corporateresponsibility.

For the moment, though, chief sustain-ability o�cers and their ilk remain in highdemand. No doubt there will also be grow-ing opportunities for ones that speak Man-darin or Hindi as the fashion for corporatesocial responsibility spreads around theworld. And it will be quite a while yet be-fore they all become redundant. 7

Future special reportsCountries and regionsAmerica and the world February 2nd

Business, �nance, economics and ideasE-government February 16th Asset management March 1st Resources in China March 15th