What makes a sustainable corporation?
As regulatory pressures build against companies to improve their overall environmental, labor, ethics, and human rights practices, corporate social responsibility matters are taking on more importance not just for chief ethics and compliance officers, but for supply chain and procurement leaders as well.
Broadly, speaking, corporate social responsibility (CSR) concerns the continuing commitment by companies to act responsibly by integrating social and environmental considerations into their operations. CSR goes beyond regulatory compliance by focusing on how companies manage their economic, social, and environmental impacts, as well as their relationships with stakeholders—such as customers, employees, and their suppliers.
To help companies benchmark their own CSR efforts, Paris-based sustainability-ratings provider EcoVadis publishes annually its Global CSR Risk & Performance Index. Now in its third year, the latest index illustrates the CSR performance of more than 30,000 companies globally, covering calendar years 2016 through 2018.
CSR benchmarks take into account the following factors to determine that extent that a corporation is sustainable:-
- Community: Does the corporation support local charities?
- Corporate Governance: Does the corporation comply with Financial Reporting Council UK Stewardship Code and applicable ESG reporting and disclosure regulations (e.g. for corporations established in the EU the Non-Financial Reporting Directive, Sustainable Finance Disclosure Regulation and Taxonomy Regulation). Does it have an MSCI ESG rating?
- Diversity: Does the corporation have a ccode of conduct that prohibits discrimination based on nationality, ethnic origin, race, gender, age, religion, beliefs, social standing, gender preference, gender identity, disability?
- Employee Relations: Does the corporation have a profit sharing scheme, life and families’ network, retirement/medical benefits and flexible working?
- Environment: Has the corporation made a commitment to renewable energy, pollution prevention, energy efficiency, sustainable management, biodiversity conservation, climate change adaption green” buildings and the circular economy (i.e. does it have a model of production and consumption, which involves sharing, leasing, reusing, repairing, refurbishing and recycling existing materials and products as long as possible with a view to the life cycle of products being extended and reducing waste to a minimum)
- Human Rights: Does it make annual submissions to the Human Rights Campaign Corporate Equality Index?
- Products: For example, if the corporation provides in the financial services, does it finance low carbon/renewable infrastructure advanced transportation, social and transition (funding industries with high greenhouse gas emissions – does it help ‘brown industries’ –to become less ‘brown’) by enabling it raise funds for this purpose through bond issuances?
How does a sustainable corporation create value for stakeholders?
According to 2019, McKinsey study, a strong environmental, social, and governance (ESG) proposition links to value creation in five essential ways.
The corporation needs to identify the key stakeholders it acknowledges that it creates value for and acknowledge that value creation. Such acknowledgement could be in the form of a corporation declaring in a public statement that it is committed to the well-being of a certain stakeholder, or by the presence of accurate accounting methods for the specific stakeholder engagement.
Case Study - Key stakeholders - Employees and Local Community
Employees and the local community are key stakeholders for all corporations. The corporation can create value for these groups through the following:-
- Enhanced labour relations.
- Promotion of diversity and inclusion.
- Providing support for socially disadvantaged young people in local communities, through education and career programs.
- Facilitating better access to resources through stronger community and local government relations.
- Encouraging employees to volunteer and fundraise for charities.
- Publishing audit information as to what the above means in practice.
Walking the walk - Credibility and Values Alignment
So, how can the corporation ensure that its declared values align with the actual value that it creates for its key stakeholders and maintain that alignment? The following is a list of things to consider with an example as to how this can work in practice:-
- Integrate ESG research (internal and external NGO) into the investment decision-making process and engage with potential and actual investee companies to understand the impact that a business has on all stakeholders to enable the corporation to make balanced comparisons and responsible investment decisions.
- Publish the above data in ‘responsible investing reports.
- Apply influence to push for better practices to ensure that stakeholders are treated fairly.
-= Case study. The Green Bank: In March 2016, the Rainforest Action Network (RAN) hand delivered a report to every participant of an investor conference in New York City. A US clothing retailer was one of the companies presenting to investors at this conference - RAN claimed that almost 300 of the products sold by the retailer-contained fabrics derived from wood coming from the destruction of the Indonesian rainforests. The company did not issue a rebuttal, but its bank were able to persuade its CFO to engage with RAN and make changes to its supply chain to source its materials from a more sustainable source.