Booz & Company Jeddah, April 2013 Sustainable CSR Saudi CSR Forum 2013 Session I: Achieving a Triangular Partnership in Social Responsibility By Salim Ghazaly (Principal Booz & Company) This document is confidential and is intended solely for the use and information of the client to whom it is addressed. 0 CSR is about businesses internally integrating and externally impacting social, economic and environmental concerns What is CSR? CSR is a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis Triple Bottom Line (TBL) approach defines the economical, social and environmental performance of a company as a criteria to measure its overall success The Global Reporting Initiative (GRI) has pioneered the development of the world’s most widely used sustainability reporting framework setting out the principles and indicators to measure and report their economic, environmental, and social performance Social Social success is defined by the adherence of the company to fair and beneficial business ethics towards labor and the community Environmental Environmental success is defined by the ability of business practices to reduce harm and increase benefits to the environment Economic CSR Economic success is defined by the capability to achieve business sustainability and answer stakeholders financial needs and aspirations Source: Desk research, Booz and Company analysis Booz & Company April 2013 CSR Forum Jeddah.ppt 1 CSR has evolved from risk mitigation to creating value and becoming a source of competitive advantage CSR Value Creation and Strategic Benefits Brand Equity Value of CSR 1 Estimate Enterprise Value of the Firm USD 1.4 Bn CSR Reporting of Top 250 Fortune 500 companies increased from 52% in 2005 to 85% in 2010 CSR Strategic Benefits - CXO’s Perspective (Survey of ME Executives) (2010) 3% 7% 7% Estimate Value of Brand Equity Estimate Value of CSR Component 3 Client CSR program will range depending on the level of sophistication of the program. USD 35 million represents CSR value corresponding to a best in class program 2% 20% 3% 2% 18% 40% USD 270 Mn USD 35 Mn (13%) 5% 18% 20% 35% 2 2% 30% 40% 47% 33% 30% Capture New Markets and Market Share Attract New Customers 58% 40% Maintain/Build Strong Reputation Attract and Retain the Best Employees 40% Foster Innovation Strongly Disagree Neutral Disagree Agree Strongly Agree Source: Branding Insider, Booz & Company analysis Booz & Company April 2013 CSR Forum Jeddah.ppt 2 CSR clearly results in growth, human development, innovation, and better environmental performance CSR Correlation with Development Indices 6 Key Takeaways 5 Global Innovation Index Growth Competitiveness Index The Arab Responsiveness Competitiveness Index vs. Growth Competitiveness, Human Development, Innovation, and Environmental Performance Indices R2 = 0.66 3 0 Clear positive correlation between front end policies regarding responsibility and actual growth competitiveness in the Arab World R2 = 0.75 0 53 60 68 50 Human Development Index 1 R2 = 0.80 0 53 60.5 68 Arab Responsibility Competitiveness Index 60 70 Arab Responsibility Competitiveness Index Environmental Performance Index Arab Responsibility Competitiveness Index R2 = 0.18 53 60 Governments and business leaders in the region have a strategic interest and various levers to activate: − Increase national competitiveness − Increase national income − Achieve social benefits − Promote human development and innovation − Etc. 68 Arab Responsibility Competitiveness Index Source: 2009 Responsible Competitiveness Index, 2009 Growth Competitiveness Index, Booz & Company analysis Booz & Company April 2013 CSR Forum Jeddah.ppt 3 In developing countries in particular, CSR is perceived as a means of social and economic development ILLUSTRATIVE Perception of CSR (Developed Vs. Developing Countries) Citizens want “Core” CSR Projects Citizens Want CSR to Promote National Development 80 Ensuring products are safe/healthy 66 71 Not harming the environment 62 68 Treating employees fairly 57 66 Ensuring responsible supply chain 58 57 Providing quality products / services at the lowest pric 55 56 Applying same high standards globally 42 Developed Countries 40 Increasing global economic stability 40 40 Reducing human rights abuses 38 37 Helping reduce rich-poor gap 39 33 Supporting charities / community projects 47 32 Solving social problems Supporting progressive government policies KSA Education Employability 40 China Worker Safety Countering Pollution 27 36 Developing Countries Source: Corporate Socieal Responsibility Monitor 2009, Booz & Company analysis Booz & Company April 2013 CSR Forum Jeddah.ppt 4 To ensure sustainable CSR, companies need to coordinate and align with governments, academia, and civil society organizations ILLUSTRATIVE Sustainable CSR Framework Provide regulatory incentives Issue CSR legislations Institutionalize CSR Governments Companies Integrate CSR in academic curriculum Support CSR research Civil Society Organizations Seek and Challenge CSR commitments from companies Advocate CSR regulations Academia Source: Booz & Company analysis Booz & Company April 2013 CSR Forum Jeddah.ppt 5 The MENA region has started witnessing some emerging CSR trends, however several steps could be followed going forward ILLUSTRATIVE Current MENA Trends and the Way Forward MENA Trends Looking Forward MENA Companies Joining UN Global Compact Engage Senior Leaders (*) 34% have CSR guidelines 10% communicated CSR goals 3% have CSR office 67%: CSR benefits our company +259 262 3 2003 Strengthen Corporate Governance and Transparency 2012 Egypt - Care with Love Improve the living conditions of those in need for short or long term health care Provide Job opportunities for unemployed young people in the field of health care Greater Autonomy to MNC MENA Subsidiaries Donate books and provide teacher training to132 schools in 11 countries across the ME More than 250 HSBC volunteers helping with community events The program was awarded an International Business Award for CSR Program of the Year in the ME Looking Forward EXAMPLE “Al Muhaidib Group: Corporate Governance Creates a CSR Agenda” Bank Muscat: Fullfledged CSR Department Only 4 in KSA Social Businesses / Entrepreneurship Proliferation 65%: CSR is our responsibility Majority in Iraq (61), UAE (41), Syria (32), and Egypt (36) Integrate with the Operating Model Both internal and external CSR should be part of the business strategy Leverage Business Capabilities Employee Skills Technology Capabilities Social networks Partner with Experts Civil Society Organizations Public-Private Partnerships (PPP) Social Business Ventures Measure Results Currently: Measure Input Target: Measure Results (*) A strategic policy initiatives for businesses committed to aligning their operations and strategies to 10 principles in the areas of human rights, labor rights, environment, etc. Source: Corporate Social Responsibility Monitor 2009, Booz & Company analysis Booz & Company April 2013 CSR Forum Jeddah.ppt 6 In addition, a successful CSR environment requires efforts from government, private sector, and non-governmental organizations Potential Activities Synopsis CSR Impact Assessment ILLUSTRATIVE Government Academia Civil Society Governments have an evident interest in CSR as it is a very cost-effective means of enhancing sustainable development World-class academic institutions play an important role in promoting CSR through their curricula, regional academia should follow Civil society organizations are growing in the region and attracting more support as governments are partnering with them Enact Legislation to Promote CSR (e.g. corporate governance laws) Include CSR in Higher Education Partner with Private Sector Companies Develop a CSR Institutional Framework Train Teachers on CSR Lend Credibility to CSR Initiatives Provide CSR Incentives Include CSR in School Plans Monitor Private Sector and Government Performance Provide CSR Training and Launch Promotional Campaigns Produce CSR Research Promote “Venture Philanthropy” Partner with Companies on CSR Initiatives Source: Booz & Company analysis Booz & Company April 2013 CSR Forum Jeddah.ppt 7 Over time, Booz & Company CSR program developed to become integrated within the company’s DNA Management Consulting CSR Maturation Process High Intensive interactions through high profile programs and partnerships Mainly with pro-bono consulting services, on-going support, etc. Resources / Investment Indirect engagement Limited scope of activities Mainly in the form of monetary and inkind donations Opportunistic engagement with selected organizations Mainly in the form of co-marketing effort, employee volunteerism, fundraising, etc.. Current Booz & Company positioning Philanthropic Transactional Integrative Low CSR Maturation Booz & Company April 2013 CSR Forum Jeddah.ppt 8