Developments in Corporate Responsibility from a European perspective

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GLOBAL SERVICE / INDUSTRY
KPMG GLOBAL SUSTAINABILITY SERVICES
Developments in Corporate Responsibility
from a European perspective
RIETI-BBL, Tokyo, 12 May 2006
ADVISORY
Professor George C. Molenkamp
Amsterdam
The KPMG International Survey of Corporate Responsibility
Reporting 2005
ƒ The majority of the 250 biggest companies in the world issued separate reports on
Corporate Responsibility: 52 percent compared to 45 percent in 2002
ƒ Corporate Responsibility reporting has changed from purely environmental reporting to
sustainability (social, environmental and economic reporting)
ƒ At national level, on average 33 % companies issued separate reports .The two top
countries are Japan (80%) and the United Kingdom (71%). Highest increases are in
Italy, Spain, Canada and France
ƒ Most remarkable is the financial sector, which shows more than a two-fold increase in
reporting since 2002
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Corporate Responsibility (CR)
Not to be confused with philanthropy!
“The commitment of business to contribute to sustainable economic
development, working with employees, their families, the local community
and society at large to improve their quality of life”
World Business Council for Sustainable Development , 2004
Synonyms
Corporate Social Responsibility, Sustainability,
Triple Bottom Line, People-Planet- Profit
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Most active regions for Corporate Responsibility
North
America
Western Europe
S-Korea
Japan
Brazil
Chile
South Africa
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Australia
5
Agenda
Facts around CR
The context surrounding the facts
The response of companies
Value creation of CR
Current development
Conclusions
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CR facts The KPMG International Survey of Corporate
Responsibility Reporting 2005
ƒ Carried out every three years since 1993.
ƒ Most comprehensive global survey of corporate
responsibility reporting.
ƒ Over 1600 corporations worldwide; response rate
98%.
ƒ Cooperation between KPMG Global Sustainability
Services and University of Amsterdam: Amsterdam
Graduate Business School.
ƒ Two parallel studies:
– The Global top 250 Corporations of Fortune 500
(G250)
– Top 100 companies in 16 countries (N100)
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CR facts
Corporate Responsibility Reporting on the rise
% of companies with
a separate CR report
Top 100 companies in 10-16 countries
Global (Fortune) 250 companies
60
50
40
N100
G250
30
20
10
0
1993
1996
1999
2002
2005
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CR facts
The nature of the reports has changed dramatically
Global 250 companies
Top 100 companies in 16 countries
Social
Social
2002
Environmental
Environmental
2005
Environmental and
Social
Environmental
and Social
Social, Economic,
Environmental
Social, Economic
Environmental
0
20
40
60
80
0
10
20
30
40
50
60
70
% of CR reports per category
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CR facts
All sectors on the rise (Top 100 companies in 16 countries)
% of companies in sector with separate CR report
Utilities
Chemicals
O il&gas
Mining
Sector
Pulp & paper
Transport
Electronics
2002
2005
Finance
Automotive
Food
Communication
Engineering
Trade
Construction
0
10
20
30
40
50
60
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10
CR facts
Developments per country (Top 100 companies in 16 countries)
% of top 100 companies per country with separate CR report
Japan
UK
C anada
France
Ge rmany
Country
USA
Finland
Italy
2002
2005
Ne therlands
Spain
Australia
De nmark
Swe den
S-Africa
Norway
Be lgium
0
10
20
30
40
50
60
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70
80
11
CR facts
The top issues in CR reports
Environment
ƒ Climate change:85%
Social issues
ƒ Diversity: 68%
ƒ Equal Opportunities: 61%
ƒ Human Rights: 51%
ƒ Collective bargaining: 33%
ƒ Child and forced labor: 30%
ƒ Freedom of association: 27%
Working conditions
ƒ Health and Safety: 72%
ƒ Training:72%
ƒ Working conditions:62%
ƒ Employee satisfaction: 32%
Community Involvement
ƒ School/education programs: 65%
ƒ Employee volunteering:58%
ƒ Health programs: 40%
ƒ HIV/AIDS: 29%
ƒ Water projects: 11%
Philantropy
ƒ Philantropy: 74%
ƒ Foundations: 47%
Economic issues
ƒ Basic information from financial report: 61%
ƒ impact of economic activities: 25%
ƒ Tax issues: 16%
ƒ Fair trade: 6%
ƒ Fair competition: 6%
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CR facts
Emerging issues
Stakeholder engagement
ƒ 57% mention key stakeholders
ƒ 39% have structured stakeholder dialogue
ƒ 32% ask for specific feedback on their CR
report from stakeholders
ƒ 8% responds publicly to stakeholder
feedback
ƒ 6% measures impact of CR report via
stakeholder dialogue
Supply chain management
ƒ 80% mention attention for CR in their supply
chain
ƒ 70% of the companies require a supplier
declaration
ƒ 16% carry out supply audits
ƒ Climate Change: CO2 trading
ƒ 85% discuss impact of Climate change
Supply chain management
ƒ 67% report on own greenhouse gas
emissions
ƒ 24% investigate consequences of CO2
trading
Corporate Governance
ƒ 67% mention code of conduct/code of ethics
ƒ 61% has section about Corporate
Governance
ƒ 53% describes link between CR and
Corporate Governance
ƒ 29% mention whistleblower/ombudsman/
other independent function
ƒ 18% mention codes related to corruption
and bribery
ƒ 6% mention link between Sarbanes-Oxley
and CR
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Agenda
Facts around CR
The context surrounding the facts
The response of companies
Value creation of CR
Current development
Conclusions
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Reflection: the context surrounding the facts
What has happened in the society ?
Strong focus on the responsibilities of companies towards:
ƒ all its stakeholder groups
ƒ the environment
ƒ the society in which it operates
Public expectations about the role of multinational companies in society are high
but… trust in business is diminishing
Leading to a call for better corporate governance, transparency and accountability
ƒ Growing number of NGOs closely watch corporations globally
ƒ Pressures from governmental organisations
ƒ As a result Companies are increasingly vulnerable to CR risks
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Public expectations (1)
Large enterprises should operate in such a manner that they and their products do not
cause harm to the environment
Public opinion
90
80
70
60
Fully agree
Partly agree
Disagree
50
40
30
20
10
0
World
Europe
Source: Globescan 2003
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Public expectations (2)
Large enterprises should help solve social problems such as crime, poverty and lack of
education
Public opinion
45
40
35
30
Fully agree
Partly agree
Disagree
25
20
15
10
5
0
World
Europe
Source: Globescan 2003
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Trust in global companies is relatively low
Public opinion: average of 20 countries surveyed
Global
corporations
Labour unions
Press & media
A lot of trust
Large domestic
companies
Some trust
Government
UN
NGO's
0
10
20
30
40
50
60
70
Source: globescan: 2004
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Growing number of NGO’s watch companies
Non Governmental Organisations
45000
Number
NGOs
40000
35000
30000
25000
20000
15000
10000
5000
0
year
1960
1970
Local /Regional
Environment
Nature
Consumers
Universities
1980
1990
2000
Global
Human Rights
Environment
Fair Trade
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Pressures from governmental organizations
United Nations
ƒ UN Millenium Development Goals
ƒ Global Compact
ƒ Financial Sector Initiatives
ƒ ILO
European Union
ƒ several initiatives in C(S)R
ƒ new European Directives (Environment)
ƒ EU Accounts Modernization Directive
OECD
ƒ Guidelines for Multinational Enterprises
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Social Risks … some examples
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Environmental Risks
example: The Greenpeace Campaign Against HP
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Agenda
Facts around CR
The context surrounding the facts
The response of companies
Value creation of CR
Current development
Conclusions
© 2006 KPMG Business Advisory Services B.V. a member of KPMG International, a Swiss cooperative. All rights reserved. Printed in the Netherlands.
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The response of companies:
managing risks and creating value
Corporation
International codes and
standards
Strategy and management
Analysis
Stakeholders
Engagement
Business
Principles
Transparancy
Accountability
Annual
CR
Report
Integration into the business
activities
Communication
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ASSURANCE
24
Relevance of Standards
Name
Key issues addressed
OECD
Guidelines
for MNEs
Principle normative framework for
MNCs
Human rights; environment; ILO core
labour standards; anti-corruption; taxation;
consumer protection, etc.
UN Global
Compact
10 principles derived from Universal
Declaration of Human Rights, ILO,
and Rio Principles
s
m
r
o
N
Business Relevance
Voluntary; possible frame of reference for a CR Code
of Conduct
Risk of reputation damage: assumed violations can
be reported by anyone to Ministry of Economic
Affairs
•
•
Voluntary, membership-based
Fundamental value of 10 principles regardless of
membership
Weak accounting/ compliance monitoring
requirements
•
•
•
GRI
Set of sustainability indicators for
reporting on CR performance
s
e
sof responsibility and materiality
s
AA1000
Scope
e
c
determined
rigorous process of
ostakeholder through
r
engagement; focus on
Standard P
underlying management systems
Voluntary, non-proprietary;
helps structuring a CR report;
No guidance on materiality
•
•
•
Voluntary; non-proprietary;
Framework for materiality check through stakeholder
engagement
No focus on accuracy of information
•
•
•
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How companies determine what is important.
The materiality test (AccountAbility)
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Agenda
Facts around CR
The context surrounding the facts
The response of companies
Value creation of CR
Current development
Conclusions
© 2006 KPMG Business Advisory Services B.V. a member of KPMG International, a Swiss cooperative. All rights reserved. Printed in the Netherlands.
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What do companies see as value creation by CR?
% of companies that mention this specific driver for CR
Innovation and learning
Risk management
Employee motivation
Acces to capital
Reputation and brand
Market position
Supplier relations
Relationship authorities
Cost saving
0
10
20
30
40
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50
60
28
Innovation and learning
example: Royal Philips Electronics case
Sectors: consumer electronics, lighting, semi-conductors,
medical systems, domestic appliances
AWARD:
Philips received
two Hong Kong
Eco-Products
Awards from the
Business
Environment
Council (BEC) in
June 2005.
Message: ”Sustainability … creating value”
Environmental communication
Internet: limited (report in HTML)
Printed and online advertisements: limited
TV commercials: limited
External recognition
DJSI World: market sector leader 2004/2005
Global100 listed: yes (2006)
FTSE4good listed: yes (2006)
For Product: BEC award 2005
Monitoring performance (KPI)
ƒ Green flagships, these products have measurably
improved environmental performance compared to
predecessors or closest competitors (total number:
160)
Green Flagships:
products with
proven better
environmental
performance
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Source: www.philips.com
29
What do companies see as value creation by CR?
% of companies that mention this specific driver for CR
Innovation and learning
Risk management
Employee motivation
Acces to capital
Reputation and brand
Market position
Supplier relations
Relationship authorities
Cost saving
0
10
20
30
40
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50
60
30
Employee motivation
attract and retain employees
Percentage of students that would not apply for a job when is
company does not behave responsible
Asia
Eastern Europe
Latin America
Western Europe
Oceanea
North America
0
20
40
60
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80
%
31
What do companies see as value creation by CR?
% of companies that mention this specific driver for CR
Innovation and learning
Risk management
Employee motivation
Acces to capital
Reputation and brand
Market position
Supplier relations
Relationship authorities
Cost saving
0
10
20
30
40
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50
60
32
Access to capital
Professional managed Investments based on ethical, social or environmental
considerations
350 TRILLION YEN
USD 2161
billion
USD 447
billion
USD 3
billion
USD 13
billion
Globally
Globally6%
6%of
ofall
allprofessionally
professionally
managed
assets,
largely
managed assets, largelyininequity
equity
Fourfold
Fourfoldgrowth
growthininsustainable
sustainable
investments
in
one
investments in onedecade
decade
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Will social and/or environmental corporate
performance indicators be integrated as investment criteria?
Survey ( investment managers)
Total
US
Europe
6-10 years
3-5 years
Canada
Australia
Asia
0
20
40
60
80
% of investment managers that
expect integration will take place
Source: Mercer Investment Consulting , 2005
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Access to capital
Role of Sustainable Indices: DJSI and FTSE4Good Index
DJSI 2005
Corporations are eager to be ranked high:
- Increases profile in the financial market
- Shows leadership
- Upward pressure on market (stock) value
330
280
230
180
130
80
1 2 /9 3 6 /9 4 1 2 /9 4 6 /9 5 1 2 /9 5 6 /9 6 1 2 /9 6 6 /9 7 1 2 /9 7 6 /9 8 1 2 /9 8 6 /9 9 1 2 /9 9 6 /0 0 1 2 /0 0 6 /0 1 1 2 /0 1 6 /0 2 1 2 /0 2 6 /0 3 1 2 /0 3 6 /0 4
D J S I W o r ld ( i n U S D )
D J G I W o r ld ( i n U S D )
For inclusion is performance required on criteria such as Corporate Governance, environmental
management/innovation, human capital, labor practices, human rights and stakeholder engagement
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Access to capital
dedicated Socially Responsible Investment (SRI) funds
Total: 10 trillion Yen Assets under management
Assets under management of SRI funds (USD billion)
No. of SRI funds
Europe
35.6
284
USA
33.6
112
3.9
Australia
50
2.9
Asia
17
ƒ USD 76 billion under management worldwide (10 trillion Yen)
(2% of total sustainable AUM, remainder in medium-sized and institutional investors)
ƒ 463 SRI funds worldwide
ƒ SRI fund managers develop expertise and alert traditional colleagues
ƒ Most SRI funds are in Europe
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What do companies see as value creation by CR?
% of companies that mention this specific driver for CR
Innovation and learning
Risk management
Employee motivation
Acces to capital
Reputation and brand
Market position
Supplier relations
Relationship authorities
Cost saving
0
10
20
30
40
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50
60
37
Increased brand value
Toyota case
Sectors: automotive
Message: ”Zeronize (emissions) and maximize”
TV ad - Toyota Prius suicide
Environmental communication
Internet: numerous sites
‘The Toyota Hybrid Prius:
good for the environment,
good for you’
Printed and online advertisements: a lot
TV commercials: limited
External recognition
DJSI World: market sector leader 2004/2005
Global100 listed: yes (2006)
FTSE4good listed: yes (2006)
For Product (Prius): U.S. EPA ENERGY STAR Sustained Excellence
2006
Product
marketing
Toyota Prius
avoids
London
congestion
charge
And it's getting a lot of attention from consumers. Last month, a record
5,230 Priuses sold in the US, and the car is on track to sell some 45,000
this year. Toyota recently announced plans to increase production to
help alleviate a backlog. The company believes it could sell twice as
many if only enough were available, Toyota Motor Sales USA Inc.
spokesman Irv Miller said.
By Greg Schneider - Washington Post Staff Writer - Monday, August 23, 2004; Page A01
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Agenda
Facts around CR
The context surrounding the facts
The response of companies
Value creation of CR
Current development
Conclusions
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CR implementation in business is a challenge for most
European companies
% Effort
Business value through
Competitive edge
Integration of CR
into business
processes
Risk &
Reputation
management
Now
Start
With courtesy to Shell
Time
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Challenges in managing CR
Loss of knowledge
and experience through
frequent organisational
changes in companies
Long communication
channels in complex
organisations
Lack of information and
experience with
management of nonfinancial (social) issues
Market pressures:
demand for quick
decision making
More decentralised
decision making by
information technology
Long supply chains
difficult to control
ƒ Sourcing
ƒ Foreign Investments
activities to China,
India, S-America
Cultural Differences
Boundaries of
companies are blurred:
mergers / alliances /
business networks
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Regional differences in CR and focal areas
North America
Japan/Korea
Western Europe
Shareholder focussed
(Anglo-Saxon-model)
Harmony
Stakeholder focussed
(Rhineland-model)
Focus on (strategic
corporate philanthropy /
giving (foundations)
“San-pou- yoshi”
Community involvement
Supplier/Customer/
Employee volunteering
Product focused
Focus on corporate
governance-dimension of
CR
Environment focused
Linkage CR and product
branding
More EU-directives on
CR/legislation
Integration CR in core
business processes:
CSO function
- R&D, purchasing, M&S,
logistics, IR etc.
Focus on social topics
(e.g. labour conditions,
human rights and
community)
Compliance driven
Influence Sarbanes Oxley
Shift starting from
environment to social
topics
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Linkage CR and
corporate image and risk
management
42
Agenda
Facts around CR
The context surrounding the facts
The response of companies
Value creation of CR
Current development
Conclusions
© 2006 KPMG Business Advisory Services B.V. a member of KPMG International, a Swiss cooperative. All rights reserved. Printed in the Netherlands.
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Conclusions
ƒ CR (Sustainability) and CR reporting has become mainstream in multinational
ƒ
ƒ
ƒ
ƒ
corporations driven by economic motives
CR stimulates innovative thinking in companies and helps to open new markets
Through increasing supply chain pressures also smaller companies (SMEs) will be
stimulated to adopt CR practices
The interest of the Financial Sector and investors in CR and CR performance of
companies has increased dramatically the last few years putting more emphasis on the
business case from the financial perspective
Embedding of CR (Sustainability) in its strategy, operations and communication is for
multinational private companies vital for success in a globalizing environment
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Contact
KPMG Global Sustainability Services
[email protected]
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