Corporate Social Responsibility

General Business

Wednesday 28 February 2007

Dr Noreena Hertz

Corporate Social Responsibility: Discover how CSR applied at every level of an organization can actually drive increased profits

The British Library Conference Centre, London

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What does the word "activist" mean to you? Someone in a balaclava perhaps? Someone smashing up a branch of McDonalds or Starbucks? Riots in London, Genoa or Gothenburg? If so, says Dr Noreena Hertz, "you're about five or six years behind the times." On stage at the British Library Conference Centre, she told around 200 members of the London Business Forum that activists have now "entered the mainstream".

No longer do they have to sport "dreadlocks and floaty clothes," she insisted. Today they're "very ordinary-looking people who, like you and me, are concerned about the environment, human rights and social ills." And they're led not by extremists but by moderate, sympathetic figures such as Jamie Oliver and Al Gore.

As if to embody this point, Dr Hertz had chosen an outfit that was conservative enough for business yet fashionable enough to show she was in the vanguard of a popular movement. The woman herself looked a decade younger than her actual age of 40, and with her marshmallow-soft voice it was difficult to believe she was an internationally renowned tub-thumper. Yet her speech was rich with detail and her responses to audience questions were well-informed. It was also clear, from her comments on certain brands, that she had the will and the venom to attack any company showing indifference to environmental and social concerns.

But is it really the job of companies to worry about issues such as climate change, or to cater for the needy overseas? Isn't that the job of governments? Certainly, she admitted, "government should be playing a bigger role in all this". However, "of the 100 biggest economies in the world, 51 today are corporations... McDonalds has outlets in 118 countries, Citigroup has branches in more countries than we in Britain have embassies..."

In some instances, companies also have the ability to improve things faster than the "politically emasculated" authorities, she argued. In India, for example, some big companies have recently been opening medical centres and schools, "not only for their employees but for villages." Similarly, in South Africa, mining companies have been providing their HIV+ workers with antiretroviral drugs, after the government refused to make them widely available.

So, companies are being targeted on moral grounds, but who are the individuals applying the pressure? The fastest growing category today is that of the "enlightened consumer," Dr Hertz said. "One in two Brits boycotted a product last year because they thought it was unethical, two-thirds say they will never return to that product, three-quarters of Marks & Spencers customers say they want to know how [the store's] goods are made, where the goods are made and what chemicals are used [in the goods' manufacture]."

Similarly, she said, the UK sales value of Fair Trade products - which guarantee a minimum level of income to overseas farmers and adherence to sustainability practices in agriculture - has increased by 53% over the past year alone.

Perhaps the highest-profile signal of the trend, she added, is the "Red" credit card issued by American Express, where the fee on each transaction includes a donation to the Global Fund for AIDS. "Even though this project has just been launched it has already raised tens of millions of pounds," she said, explaining that she played an advisory role in its creation. "There is a market out there who will seek out a product if they think that by buying it they will have the bonus of doing good."

Individuals feel increasingly well-equipped to make such decisions because of the growing amount of information available to them on the Internet. They can easily perform basic checks on the provenance of the things they buy. Indeed, they can easily compare prices between suppliers and thereby calculate the "premium" of ethical and sustainable practices. In addition, Dr Hertz pointed out, websites such as mcspotlight.com, walmartwatch.com and chasebanksucks.com, which aim to expose the alleged wrongdoings of specific brands, have attracted millions of visitors.

Then there are the professional campaign and pressure groups, such as Greenpeace and Oxfam. These are "increasingly wielding huge influence" and "see companies as political powers", Dr Hertz said, pointing out that people trust pressure groups much more than they trust the media, the government or business. "Seventy-six per cent of people trust Amnesty International versus 35% who trust Coca-Cola, 27% who trust any political party, and 26% who trust McDonalds," she said. "What these [pressure] groups say on outsourcing, on labour standards, on the environment, on the supply chain, is increasingly shaping what the public, what society and what the government want, expect and demand of big business."

Another significant trend of recent years, Dr Hertz said, is the increased number of institutions basing their investment decisions on environmental and social criteria. For example, in 2006, the Norwegian Petroleum Fund, the world's largest institutional investor, hired an "ethical philosopher" and, as a result, divested its shares in Wal-mart, over alleged abuses of human rights and labour rights. Similarly, a group of 17 US pension funds, which together manage $658bn, recently confronted Exxon Mobil over its intransigence on climate change.

Staff are even putting pressure on their employers. "People don't leave their values at home when they go to work, and people don't like working for a company that's perceived to be bad," Dr Hertz said. "It's not only that they don't want to work for bad companies, they actively want to work for good companies, especially in this new environment in which community is kind of disintegrating and people's jobs are increasingly becoming a badge of who they are and what they stand for." Thus, showing concern for environmental and social issues is likely to improve your chances of recruiting and retaining the best staff.

Finally, governments and regulators have a vital role to play in sustaining corporate growth while changing corporate behaviour. They haven't played this role very well so far, Dr Hertz suggested, and need to do more to communicate the necessity of ethically driven measures while developing a sensible mixture of incentive, regulations and market-driven solutions. In particular, she said, politicians need to avoid being short-termist and impractical in their race to prove their "green credentials". However, she warned, no one should be in any doubt that it is possible to get binding regulation, even on a global scale, that is designed to address moral issues.

She cited the example of the World Health Organisation's Framework Convention on Tobacco Control, which puts major restrictions on the marketing of tobacco and has been ratified by 180 countries. She also pointed to a recent study commissioned by the UN and carried out by Freshfields, the international law firm, which concluded that institutional investors act irresponsibly if they fail to treat ethical and environmental issues as investment criteria. "The law... is not static and reflects the societies in which we live, and as society increasingly puts these things on the agenda, the legal system and laws will increasingly follow suit," she concluded. Companies that assume they can insulate themselves from such changes are, in effect, exposing themselves to huge risks.

"The wrong corporate response today - and I'm absolutely sure of this - is to take the position 'We don't want this...' and we're going to gang together and fight," Dr Hertz said. "That's the most stupid course a company could take." She reminded the audience of what happened to the major US car companies when they made a joint effort to lobby against a "Clean Air" bill in the 1970s. They were leapfrogged by Honda, which recognised this kind of legislation was inevitable and therefore put its efforts into developing cleaner technology instead.

Being smart on environmental and social issues means understanding and monitoring all forms of activism with an impact on your industry, Dr Hertz continued. The information you gather must be used to reshape your policies on acquisitions, outsourcing and supply-chain policies; to re-evaluate which clients and customers to serve, and which not to serve; and to work out how to "front-run" regulation. In this way, you will not only minimise your risks but also find it easier to develop new offerings.

The smartest companies, meanwhile, are going one step further. They are not only reacting to moral pressure, Dr Hertz said, but are "actively making moves to [shape] the new environment themselves." Goldman Sachs, for example, has recently announced it will use its resources to lobby governments on carbon emissions; HSBC and Sky have announced they are going carbon-neutral; and a consortium of 10 US companies, including Alcoa and Dupont, are lobbying Congress for a US-wide emissions trading system. Through such activism, Dr Hertz concluded, such companies believe "they can increase their reputation, lower their risk, increase their profits and create a better world - a win-win-win-win situation."