Sustainable development suggests that the human race is dependent for its survival on achieving a “sustainable” balance between the demands of society and the ability of the planet to support those demands, whether they be the supply of finite or renewable resources, such as energy, water and minerals, or the ability of the planet’s ecosystem to absorb or process the products of agri-industrial activity in the form of pollution, such as acid rain or carbon dioxide and other greenhouse gas emissions. Essentially, it asks that we behave in a responsible manner now in order that our grandchildren can inherit a world that is no less rich, diverse and capable of supporting life than the one we enjoy today. Recent broad scientific consensus on the reality of global warming, its potential consequences in terms of climate change and sea-level rises and the contribution of man’s own activities has added further spice to the importance of achieving the necessary balance.
The past decade or so has witnessed the development of corporate social responsibility (CSR) as the business-level response to the sustainability agenda. As Internet access has blossomed, companies have come to realize that they no longer control the flow of information about their own activities and those of their suppliers. If they are seen to be responsible for deforestation of the rainforest, forced resettlement of villagers, employment of child labor, violations of human rights, fraudulent, corrupt or unethical business behaviors, no matter where in the world, they may be held to account in the court of human opinion. Nongovernmental organizations, trades unions, consumer and community groups can share information almost instantly and organize boycotts and campaigns whose effects can be widespread.
The business impact goes straight to the heart of reputation. Consumer choice in some markets is now influenced by ethical considerations. “In buying this product, am I helping to support business practices of which I disapprove?” If the answer is “yes” and there is an alternative that is more acceptable, then a point of differentiation has been established and market share can be gained and lost. Smart companies recognize the need to understand this agenda and to ensure that, far from being disadvantaged by it, they work to maximize the opportunities it presents.
Internationally, CSR is a term used to cover a wide range of activities that aim to build better relationships between a company and its various “stakeholders” or interested parties. These stakeholders are found in the marketplace (customers and suppliers), workplace (employees), community (neighborhood, media, government) and the environment. The argument posited by advocates of CSR is that by understanding and improving relationships with stakeholders a company will derive long-term shareholder benefit. This is not philanthropy and it is not a corporate excuse for making a profit. Rather, it is enlightened self-interest. In essence, it is recognition that a company is more likely to prosper if it understands, anticipates and accommodates the needs and expectations of those with whom it does business.
What does this look like? It means early, two-way communication with community groups in areas where mineral resources and pristine wilderness coexist, in order that local knowledge and expectations can be built in to the design of the mine. It means recognizing employees as a key resource of the company, understanding the costs associated with having to replace them or with their underproductivity so that investment in their training, education and motivation becomes a key business driver. It means a relentless focus on customer service, understanding not only what they want now, but what they may want next year, in order to be well-placed to provide it. The successful companies of the future will have identified their critical business relationships and will be working to benefit from them.
Social and environmental issues count because they are emotive and because they have a direct impact on reputation. More than 30 leading international banks, controlling over eighty percent of global project finance, are signed up the “Equator Principles,” by which they agree to undertake rigorous environmental and social impact assessment on potential investments. They do this in order to avoid damaging publicity, by association. A significant proportion of Britain’s top 100 companies voluntarily produce information on their social and environmental performance (a CSR report). The London Stock Exchange has launched its Corporate Responsibility Exchange, an on-line tool where listed companies can post their own information on their CSR performance, for the benefit of investors.
In Russia, CSR management and reporting is in its infancy. Some companies have recognized the value of reporting their intentions and performance in this area, whether it is with the domestic political agenda in mind or with an eye to a future London listing. To date, however, much of the recent conversation on CSR here has overemphasized the role of charity. Donations to orphanages and orchestras are undeniably a part of CSR. No one would suggest that this is anything other than a good thing. However, charity is a relatively small part of the CSR picture. Strong, proactive management of key business relationships via transparent two-way communication makes good business sense and is a clear indication of good corporate governance. Russian companies, as elsewhere in the world, stand to benefit from implementing the wider vision of CSR.
By Mark Thompson
Director with PricewaterhouseCoopers Russia Sustainability Practice