Julien's posterous

Socially Responsible Investment: Executive Summary

Usually, we consider that there are 5 different – and complementary – strategies related to socially responsible investment (SRI):
1.    Negative Screening
•    What is it? It consists of barring investment in certain companies, economic sectors, or even countries for Corporate Governance (CG) or Social, Environmental and Ethical (SEE) related reasons; it is also sometimes called “exclusion”.
•    Main challenge. Many companies may not have their entire business, but only a share of it, in the sector that one wishes to exclude. The key issue is to decide where to draw the line, implying to use analysts with extensive experience in the field.
2.    Positive Screening
•    What is it? It is the selection, within a given investment universe, of stocks of companies that perform best against a set of sustainability or CG/SEE criteria. The most popular form is called “best-in-class”, which involves ranking firms on ethical issues relative to industry peers.
•    Main challenge. There is one major technical difficulty to address: what criteria do we want to use and how do we assess the companies’ performance against those criteria? It is therefore a resource-consuming strategy.
3.    Engagement
•    What is it? It can be defined as “influencing corporate policy by virtue of the position as investor and the associated rights”. It can take different forms such as establishing an ongoing dialogue with the company or voting during the company’s AGM.
•    Main challenge. The focus of engagement is limited by human factors such as size of teams and time allotment, thus potentially covering less ground than other strategies.
4.    Integration
•    What is it? CG/SEE analysis is integrated into investment analysis and decision making.
•    Main challenge. The key issue is to decide how to weight the financial and the extra-financial aspects, therefore requiring analysts with a strong expertise.
5.    Combining Strategies
•    What is it? Most of the time, a combination of strategies are applied as certain strategies may be more effective than others in tackling specific issues.
•    Main challenge. Combining Strategies is definitely a resource-consuming approach, involving the need to provide large engagement and/or analyst teams.
In addition, one has to know that there exist some “sustainability indexes”, such as The Dow Jones Sustainability Index (DJSI) or the FTSE4Good. These indexes rank companies according to sustainability criteria. They can be useful if one considers using a positive screening approach but doesn’t want to create its own assessment methodology; in particular if one wants to use a “best-in-class” approach.

The Business Case for Labour Standards

"When buying goods and services, you are not just buying in those services, you are in some respect buying in an element of your reputation" - Darren Ford[1] 

 

Supply chain issues have been on the agenda of many companies, NGOs and international organizations over the last years. From Nike in the 1990's to Zara in Brazil a few months ago, there are countless examples of scandals. Most of them were related to non-compliance with what the ILO has identified as the Core Labour Standards: freedom of association and the right to collective bargaining; elimination of all forms of forced or compulsory labour; effective abolition of child labour and; elimination of discrimination in respect of employment and occupation. Lots of organizations and companies have worked - sometimes together - on solutions to implement labour standards in the supply chain. So far, progresses have been achieved, but there is still room for improvements.

 

One of the main question remains to know whether there is an incentive to actually solve this problem, at least from the point of view of the companies, the buyers. We all can agree that those companies must take action when this kind of problem arise. But are they incentivized to proactively handle these issues?

 

In other words, is there a business case for labour standards?

What is at stake?

 

It is known that poor labour standards in supply chains present a variety of risks to organisations procuring from these supply chains. According to the British Medical Association[2], there are three principal risks related to the labour standards issues:

 

  1. Threat to the security of supply.
  2. Adverse publicity and damage to the organisation's reputation linked to a failure adequately to measure up to key stakeholders values, principles and expectations.
  3. Reduced quality of goods and services.

 

Therefore, buyers face risks such as losing their supply, sparking off negative reactions from their customers or being supplied with poor quality products.

There is an obvious need to reduce the exposure of companies to such threats. Moreover, those threats, if handled appropriately, could become opportunities. Indeed, instead of losing its supply, a company could strengthen its business relationship by promoting ownership of standards by its suppliers. Or improve its reputation among consumers; and enhance the quality of the goods it purchases.

By efficiently managing labour standards issue, a company could not only reduce its risks exposure, but also reap benefits from good practices in this area.


Creating value

 

In its booklet "Beyond Auditing: Tapping the full potential of labour standards promotion"[3], the Dutch Sustainable Trade Initiative identifies several factors that can contribute to the creation of tangibles and intangibles assets:

 

  1. Reputational and legal risk management: by taking an active approach to managing labour rights compliance, companies can assert their values and positively influence their reputations.
  2. Human capital returns: leading organisations have recognised that many breaches of labour standards are the result of inadequate human resource management, and they have taken a proactive lead in promoting improved management processes among their suppliers.
  3. Security of supply: investment in supplier working conditions has been increasingly associated with higher productivity, particularly as factories require higher skills. Poor conditions may fuel employee dissatisfaction, increasing the risk of work stoppages or higher attrition rates.
  4. Operational efficiency: addressing supply chain labour standards in partnership with suppliers can – directly and indirectly – contribute to more effective ways of doing business, through an increased understanding of the supply chain, closer relationships with suppliers, increased mutual trust, and less disruption in the supply chain.
  5. Access to markets: suppliers and brands which can demonstrate social compliance will enjoy greater market access, as there is a growing demand for sustainable, fair and ethical products.
  6. Access to capital: investors are increasingly looking for assurance that labour rights risks are being managed. Responsible investment approaches that include respect for labour standards are becoming mainstreamed among institutional investors.

 

This confirms what has been said above: what was previously presented as business risks can be "transformed" into business opportunities. It is in the interest of the buyers to proactively address labour standards-related issues, as they could take advantage of this situation, if managed appropriately.

Ultimately...

 

In the preceding lines, we tried to determine whether there is a business case for labour standards. We saw that the companies may have to deal with labour standards issues in their supply chain, and that these issues could cause serious damages to different aspects of business. On the other hand, we also saw that companies could take advantage of the risks they face, and even find some new business opportunities.

In order to operate this shift from threat to opportunity, it is essential that the company moves from a reactive to a proactive attitude. It has to acknowledge that problems may arise and take measures to mitigate their effects, or even better: to avoid them. As Simon Zadek wrote in "The Path to Corporate Responsibility"[4], most companies pass through five discernable stages in how they handle corporate responsibility. Amongst these stages, the first ones (defensive, compliant) are linked to a reactive attitude, while the last ones (strategic, civil) are related to a more proactive attitude. Companies that have to deal with (potential) labour standards issues should definitely strive to follow this path.


[1] Hopkins M., Corporate Social Responsibility & International Development: is business the solution?, Earthscan, London, 2007, p. 146.

[2] British Medical Association website, "Info sheet: Making the business case for ethical procurement in your organization", http://www.bma.org.uk/images/ephbusinesscasemay2011_tcm41-206729.pdf (accessed 02.06.2012)

[3] Dutch Sustainable Trade Initative website, "Beyond Auditing: Tapping the full potential of labour standards promotion", www.idhsustainabletrade.com (accessed 02.06.2012)

[4] ZADEK S., "The Path to Corporate Responsibility", in Harvard Business Review, December 2004.

Where to look for a job in the CSR field?

I recently realized that when you look for a new job, you need to first search where to look! Which is not as easy as it seems...However,I have been able to find a few websites where you can find interesting CSR jobs. Here is my list:
As you may have noticed, there are no "french speaking website" on my list. Any suggestion?

Understanding Business Ethics

No such thing as a free drink?

A good friend of yours who studies at the same university has been complaining for some time to you that he never has any money. He decides that he needs to go out and find a job, and after searching for a while, he is offered a job as a bartender in the student bar at your university. He gladly accepts and begins working three nights a week. You too are pleased, not only because it means that your friend will have more money, but also because the fact is that you often go to student bar anyway and so will continue to see him quite frequently despite him having the new job. The extra money is indeed much welcomed by your friend (especially as he has less time to spend it now too), and initially he seems to enjoy the work. You are also rather pleased with developments since you notice that whenever you go up to the bar, your friend always serves you first regardless of how many people are waiting at the time.

After a while though, it becomes apparent that your friend is enjoying the job rather less. Whenever you see him, he always seems to have a new story of mild, but annoying treatment at the hands of the bar manager, such as getting the worst shifts, being repeatedly chosen to do the least popular jobs, and being reprimanded for the kind of minor blunders which go uncensured for the rest of the staff.


This goes on for a short while, and then one day, when you are in the bar having a drink with some of your other friends, your friend the bartender does something that you are not quite sure how to react to. When you go up to pay for a round of four beers for you and your other friends, he discreetly only charges you for one. Whilst you are slightly uncomfortable with this, you certainly don’t want to get your friend into any kind of trouble by mentioning it. And when you tell your friends about it, they of course think it is very funny and congratulate you for the cheap round of drinks! In fact, when the next one of your friends goes up to pay for some drinks, he turns around and asks you to take his money, so that you can do the same trick for him. Although you tell him to get his own drinks, your friend the bartender continues to undercharge you whenever it is your turn to go to the bar. In fact this goes on for a number of visits, until you resolve to at least say something to him when no one else behind the bar is listening. However, when you do end up raising the subject he just laughs it off and says, ‘Yeah, it’s great isn’t it? They’ll never notice and you get a cheap night out. Besides, it’s only what this place deserves after the way I’ve been treated.’

Questions

  1. Who is wrong in this situation—your friend for undercharging you, you for accepting it, or neither of you?
  2. Confronted by this situation, how would you handle it? Would you ask your friend to stop undercharging you? If so, what if he refused?
  3. To what extent do you think that being deliberately undercharged is different from other forms of preferential treatment, such as serving you in front of other waiting customers?
  4. Does the fact that your friend feels aggrieved at the treatment he receives from his boss condone his behaviour at all? Does it help to explain either his or your actions?

3 definitions of #csr

Here are 3 definitions of corporate social responsibility. Two of them are in French, and the other one in English.


  • Hopkins M. Corporate Social Responsibility and International Development:

 « CSR is concerned with treating the stakeholders of the firm ethically or in a responsible manner. “Ethically or responsible” means treating stakeholders in a manner deemed acceptable in civilized societies. Social includes economic and environmental responsibility. Stakeholders exist both within a firm and outside. The wider aim of social responsibility is to create higher and higher standards of living, while preserving the profitability of the corporation, for people both within and outside the corporation. »

 

  • Gendron, Lapointe, Turcotte, Responsabilité sociale et régulation de l’entreprise mondialisée :

« Des initiatives corporatives volontaires à caractère social et environnemental allant au-delà des obligations fixées par la loi. »

 

  • Livret vert ; Promouvoir un cadre européen pour la responsabilité sociale des entreprises., Commission des Communautés Européennes :

« L’intégration volontaire des préoccupations sociales et écologiques des entreprises à leurs activités commerciales et leurs relations avec leurs parties prenantes. »

CSR reporting: Thought-Provoking Articles

Back in my office after a 10 days break, I have a question: how could I write an INTERESTING Corporate Social Responsibility Report?

I don't really have a precise answer, but I am quite sure that the following list of articles and websites could be of great help.

Writing and Storytelling

Design
But maybe, we should first learn how to read a csr report...
Last but not least...