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Strategic Approach to Corporate Responsibility
Michal Dzoga
Sofia, 30th October 2008
.
Agenda
Global trends in Corporate Responsibility
2
CR development evaluation
8
Deloitte’s approach to CR strategy building process
14
Benefits for a company
19
-1-
Global trends in Corporate Responsibility
Basic reporting extended with CR issues
Triple Bottom Line
 Environmental
Obligations
 Social & Ethical
Obligations
– Develop processes and
technologies to protect
natural resources
– Serve the best
interests of the human
assets
– Develop innovations to
reduce environmental
harm
– Develop innovations
to improve standards
of living
– Develop, improve, or
sustain infrastructures in
local communities
– Provide resources and
support to local
communities
– Engage in waste
management/ recycling
– Engage in global
events
– Provide resources and
support to global
stakeholders
 Financial
Obligations
 Regulatory
Obligations
– Maximize
shareholder wealth
– Abide by the law and
industry regulations
– Ensure long-term
profitability
– Provide full disclosure
of financial information
– Communicate
strategy, vision, and
financial
performance to
shareholders
– Comply with stock
exchange regulations
– Provide tax revenue
for state and federal
government
– Support the
economies of local
communities
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Business approach to Social Responsibility
 Stronger influence of intellectual capital on company’s real
value
 Integration of Social Responsibility with business strategy
 Increasing requirements of financial markets, stakeholder
groups and global trends
Number of reports by type
 Increasing number and international reporting
standardization of extra financial business performance
Number of sustainability reports
Source: www.corporateregister.com
 Evolution of Social Responsibility in the direction of
Corporate Responsibility and Sustainability
Source: www.corporateregister.com
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Corporate Responsibility standards
 International standards and guidelines
Global Reporting Initiative
 Standards used in CR audits
– ISO 14064
– Rules for determining report content
– AA 1000
 Materiality
– ISO 14001
 Shareholders interest
 Sustainability
– OHSAS 18001
 Completeness
– ISO 9001
– Rules for ensuring high report quality

Balance

Comparability

Accuracy

Timeliness

Transparency

Reliability
– ISO 26000 (in preparation)
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Global trends concerning stock exchange investments
More and more companies are being measured by more than just financial performance – leading
to the creation of a number of indices focused on environmental, social and economical
performance.
 Dow Jones Sustainability Index (DJSI, Nowy York – World index)
 FTSE4Good (Londyn – World index)
 Johannesburg Stock Exchange Socially Responsible Investment Index
 Sao Paulo Stock Exchange Corporate Responsibility Index
 Ethibel Sustainability Index (ESI – European index)
 Business in the Community (Great Britain)
 2005 Environmental Sustainability Index (Yale Univeristy and Columbia University)
 Jantzi Social Index (JSI - Canada)
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Investments in environment friendly companies
International organization Carbon Disclosure Project (CDP)
 In 2003, Institutional investors issued GHG emissions disclosure requests to
FT500 largest companies
 CDP provides a coordinating secretariat for institutional investors with a
combined $57 trillion of assets under management. On their behalf it seeks
information on the business risks and opportunities presented by climate
change and greenhouse gas emissions data from the world's largest
companies: 3,000 in 2008.
Percentage of responces
Number of institutional investors
385
2008
315
2007
0
50
60%
2004
47%
2003
35
2003
71%
2005
95
2004
72%
2006
155
2005
100
150
200
250
300
350
400
-7-
0%
82%
77%
2007
284
2006
Estimation
2008
10%
20%
30%
40%
50%
60%
70%
80%
90%
CR development evaluation
The trust building Framework
Trust is achieved through behavior and transparency and is a key success factor for
the business to operate, innovate and grow.
Stakeholders
needs and
expectations
Standards
And
Guidelines
Benchmark
to others
Own needs –
what’s good
for Business
Licence to operate, innovate and grow
Clear value & principles,
objectives, governance
structure and “walk the talk”
Transparent reporting
on values,
management practices and
performance
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Get Independent Assurance
through a phased approach
with external reporting and assurance
General companies’ approach to CR – level of engagement
Strategic approach
Responsive approach
Philanthropic approach
Non-engagement
Companies at this stage view
corporate responsibility at a
distraction or impediment to
their primary goals value
creation. Beyond legal
requirements they do not
engage in environmental,
health, safety, community or
governance issues.
Companies approach
corporate responsibility as an
exercise in establishing
goodwill by making charitable
contributions. The underlying
assumption is that goodwill or
reputational enhancement is
the only return in investment
to be derived from such
actions.
Businesses act as
corporate citizens and
work to actively mitigate
risks and reduce negative
impacts arising from their
activities. The goal for
these companies is value
protection.
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Organizations at this level
focus not only on value
protection, but also on
innovation that will benefit
both society and the
company’s own
competitiveness. At this
level of engagement,
corporate responsibility is a
business imperative that
informs the overall corporate
strategy and is seen as a
value creation
mechanism.
Company’s CR partners - stakeholders grouping
Customers
Build reputation and brand of the
organization. If loyal to the company,
create stable grounds for increasing
income.
Employees
Investors
Company
Business Strategy
Risk Management
Their engagement, satisfaction and
loyalty impacts company’s perception
and determines its economic success.
The group most interested in sustainable
development and dynamic growth. It
includes Corporate Governance issues.
Brand & Reputation
Suppliers
The quality, reliability and solidity of their
products and services influence credibility
and high standards of the company
Corporate culture
Communities
Environment
Social groups e.g. disabled people, local
communities, institutions like schools and
hospitals influence public opinion and
media approach.
Ignorance of natural environment
protection issues may result in serious
threat for the business from public
opinion and legal regulations
Stakeholders engagement is becoming crucial in:
-defining and developing sustainability reporting system
-aligning the performance reports with new business strategy
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others:
Government / Regulator
Customer organizations
Competitors
Preliminary recognition of CR activities – issues to be dealt with
Corporate Responsibility fields
 Organizational culture
 Customers
 Reporting
– Mission, Vision, Key Values,
– Quality management systems
– Environmental report
– Code of Conduct,
– Health & Safety
– Environmental protect report
– Ethical program
 Shareholders
– Corporate Governance
– Improve communication with
financial market participants
– Internet transmission from
stockholders meeting (ASM)
 Employees
– Recruitment and development
– Employee voluntary service
– Usage of international standards
 Suppliers
– On term delivery
– To keep official secret
 Environment
 Local communities
– Relations with organizations
– Environment investments
– Charity cooperation (Ngo)
– Green supply chain
– Social programs
– Green footprint
– National culture patronage
– Energy consumption
– GHG emissions
– Social actions
– Restructuring
– Trade Unions
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Most important challenges in strategic approach to Corporate Responsibility
Consistent Deployment of CSR Strategy
Decentralized Strategy
 Generally, corporations do not have well defined strategies to holistically address CSR as a strategic objective. Many responses have been limited to cosmetic solutions
such as PR and media campaigns
Disconnected Efforts
 Some corporations perform a number of unrelated CSR activities that address the needs of disparate stakeholder groups and do not focus on a corporate wide approach
to strategic stakeholder groupsa
Resource Constraints:
 Many organizations have identified financial and staff resource constraints as a major obstacle to the strategic planning and development of CSR activitiesb
Balancing Stakeholder Interests
Balance
 Corporations have difficulty balancing the primary interests of shareholders and remaining stakeholders to relieve the tension between achieving financial goals versus
social and environmental goals
Short-term focus
 The primary focus of corporations has been to maximize shareholder profit by addressing easily measurable short-term financial performance goals
Shareholder Interests
 In the UK, 57% of financial analysts and 41% of investors claim that they do not pay attention to social, ethical and environmental issues when making investment
decisionsc
Stakeholder Interests
 Communities, employees, and customers express more interest in the long-term strategies such as corporate governance, social responsibility, and sustainability that do
not produce immediate financial results
Measuring Results
Quantifying Returns
 Measuring results of CSR programs has been identified as the greatest challenge to corporations
–
–
–
Although about 50% of companies see more potential business opportunity than risk to their organization they are struggling to find ways to capitalize on programs
in the marketplace
71% of companies report publicly on citizenship and sustainability performance, but have difficulty communicating value to stakeholdersa
70% to 80% of market value comes from hard-to-assess intangible assets such as brand equity, intellectual capital, and goodwill, organizations are especially
vulnerable to anything that damages their reputation d
Source: a. Michael E. Porter and Mark Kramer, “Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility”, (Harvard Business Review
2006); b. David J. Vidal, “Reward Trumps Risk: How Business Perspectives on Corporate Citizenship and Sustainability Are Changing Corporate Board Survey” (Corporate Board
Action Series 2006); c. Leslie Stones, “Forget the Bottom Line, Watch the Managers” (Business Day 2006); d. Robert Eccles and Scptt C. Newquist “Reputation and its Risks”
(Harvard Business Review 2007).
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Deloitte’s approach to CR strategy building process
CR must be incorporated into existing strategic planning processes.
Corporate Governance
• Communication of CR issues to the board is
critical in the development and evolution of
the CR strategy
• The board’s demonstration of desired behavior
is critical to the implementation of the CR
strategy
Business Strategy
Raise CSR issues to the board
CR Agenda
Environmental
Awareness
Local
Outreach
International
Outreach
Internal
Development
CR Management Practices
Communication of
Expectations
Rewards and
Recognition
Role Model
Behavior
Consistent
Global/Regional
Deployment
Monitor and
Control
Implementation of the CS agenda
Corporate Responsibility (CR) Strategy
Employees
The deployment of CR management practices will drive employee engagement and build a sense of
individual and collective ownership of the CR Agenda
Management practices need to address differences across regions, lines of business, business units, and geographies.
For example, interpretation of CR differs for a business unit located in the US versus Europe and prioritization of CR
issues differ for lines of businesses such as financial services or healthcare in the same corporation.
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Methodology of implementing strategic approach to CR
Phase I
Preparatory
Phase II
Implementation
Phase III
Operational
1st Stage
3rd Stage
5th Stage
Pre-audit of Corporate
Responsibility procedures and
activities
Determination of communication
rules with stakeholders
Support CR system management
2nd Stage
4th Stage
6th Stage
Development / adjustment of
Corporate Responsibility policy
Establishment of formal
CR function
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Sustainability Report audit
Deloitte’s CR tools
Tools used by us were developed on the basis of Deloitte’s experts experience gained over the years as well as
international best practices:
The Deloitte Sustainability Scorecard – gives the
indications on the way of preparing the report, content of the
report and form of the final report. It allows for a overall view
and captures all CR areas and issues based on the 6
categories that include 30 indicators.
Deloitte’s Good Practice Model – allows for the analysis
and assessment of current CR area’s situation at the same
time identifying these activities that require improvement.
ERA (Deloitte Enterprise AssessmentTM) – this is a
methodology that allows to identify and assess risk in
organizations. It facilitates prioritizing of CR areas in regard to
organization's business strategy.
Deloitte Sustainability Assessment Model – enables the
organization's quality assessment in regard to social responsibility
and sustainability. Allows for identification of the competitive
advantage areas as well as those of the poor quality.
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Deloitte’s global network of CR&S services
 More than 200 practitioners in more than 20 countries world-wide (70 practitioners in Europe), led by Eric
Hespenheide, partner US.
– Focus on Assurance lead by Preben J. Soerensen (Partner, DK)
– Focus on GHG services lead by Pat Concessi (Partner, CAN)
– Engineers and auditors, environment and sustainability experts
Green Building Retrofit Research Study
 Yearly international conference of CR&S network
– Firenze 2003, Paris 2004, Toronto 2005, Madrid 2006, Copenhagen 2007
Tyler Jones
Sam Milton
Josh Nothwang
Deloitte Consulting
July 27, 2007
 Intense representation internally and externally
 Member of World Economic Forum
 Member of World Business Council for Sustainable Development
 Signatory to the Global Compact
 Member of the Global Reporting Initiative (GRI) Board of Directors
 Strong collaboration with audit, risk and management consulting, and
corporate financial services to offer innovative, multi-disciplinary service
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Benefits for a company
Potential companies’ features that influence CSR
 Companies with negative brand image
– PKN Orlen, TP, Provident, PZU, Kompania Węglowa, Tesco, Jeronimo Martins (Biedronka), J&S, Prokom, Microsoft
 Organizations conducting „sensitive business” exposed to social disapproval
– (tobacco) BAT, Philip Morris, (military) Bumar, International Technologies, (alcohol) Grupa Żywiec, Kompania Piwowarska,
Sobieski, Polmos
 Companies with the dominant market share e.g. former state owned entities
– PZU, TP, KGHM, PKP, Telewizja Polska
 Enterprises conducting mergers, transformation or rebranding
– Bosh-Siemens, Alcatel-Lucent, Nokia-Siemens, PEKAO (BPH part), Polpharma,
 Companies with comparable products and services difficult to promote or with advertising limitations
– (energy) RWE Stoen, PSE, Vattenfall, PGE, Tauron, (pharmaceuticals) Bayer, Polpharma, GlaxoSmithKline, Polfa,
Novartis, Servier
 Companies acting on highy competitive and price sensitive market
– (mobile) Polkomtel, PTK Centertel, PTC, (financial advisory) Expander, Open Finance, (banks) Polbank, PKO BP,
PEKAO, Millenium, BRE, Eurobank, Provident
 Companies with environment sensitive products or activity
– (fuel) Shell, PKN Orlen, Lotos, BP, Statoil, (energy) Vattenfall, Elektrownia Kozienice, (chemicals) Zakłady Azotowe
Puławy, Ciech
 International corporations entering foreign market with imported CR strategy – not adjusted to local
business environment
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Implementing strategic approach - advantages for companies
Business Risk
Reduction
 Anticipation and counteraction of legal, personal, environmental, corporate
image and operational risks
 Well managed CR activity influences customers trust and employees loyality
Long-term
stable growth
Increase in
company’s
value
Obtaining
competitive
advantage
 CR is no longer a single PR activity but perceived as long-term investment
became the dynamic developing philosophy of conducting business in
modern world
 Investors are more likely to invest in companies with long-term strategy based
on system of values that secures sustainable development and reduces
business risks
 Following FTSE4Good and Dow Jones Sustainability, different stocks create
new indexes designed to measure the performance of companies that meet
globally recognized corporate responsibility standards and to facilitate
investment in those companies
 Obedience to CR values will definitely transform from company’s competitive
advantage today into obligatory standard tomorrow
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Implementing strategic approach - advantages for companies
„Desired”
employer
Better and cost
effective
marketing
Fair judgment
 Professional CR strategy increases employee satisfaction, loyalty and
motivation in more effective way with non-salary factors
 Better reputation positively affects recruitment process (EU open labor market
makes it more challenging for employers in CEE countries)
 Corporate image advertising campaigns based on and CR policy are being
implemented by many companies in order to strengthen brand perception
 Growth in the affluence of the Polish society makes the customer choice less
price sensitive in favour of brand awareness
 External and professional assurance guarantees balanced and reliable
assessment as opposed to the „flattery” internal reports
Expansion
benefit
 Companies with professional CR strategy and reporting are better perceived by
external environment (authorities, media, partners) while acquiring new
markets as well as conducting mergers and acquisitions
Meeting
industry
requirements
 Companies with no professional CR regulations are excluded from cooperation
with companies that obey CR values at all levels (partnerships, supply chain)
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O Deloitte
„Deloitte” to marka, pod którą pracują wspólnie dziesiątki tysięcy profesjonalistów w niezależnych od siebie firmach na całym świecie, świadcząc klientom usługi m.in. audytorskie, konsultingowe, doradztwa finansowego, zarządzania ryzykiem i
doradztwa podatkowego. Firmy te są członkami Deloitte Touche Tohmatsu, podmiotu prawa szwajcarskiego („DTT”). Każda firma członkowska świadczy usługi na określonym obszarze geograficznym i podlega przepisom prawa oraz regulacjom
branżowym kraju lub krajów, na terenie których działa. DTT wspomaga koordynację działań firm członkowskich, ale sama nie świadczy usług na rzecz klientów. DTT i jej firmy członkowskie są odrębnymi i niezależnymi podmiotami prawnymi, które
nie mogą podejmować zobowiązań za siebie nawzajem. DTT i jej firmy członkowskie ponoszą odpowiedzialność wyłącznie za własne działania
i zaniechania, a nie za działania i zaniechania innych firm członkowskich. Każda z firm członkowskich DTT ma indywidualną strukturę organizacyjną, odpowiadającą przepisom prawnym, regulacjom, praktyce zwyczajowej
i innym czynnikom kraju prowadzenia działalności, i może świadczyć usługi profesjonalne na jego terytorium
za pośrednictwem spółek zależnych, stowarzyszonych i/lub innych podmiotów gospodarczych.
O Deloitte w Europie Środkowej
Deloitte Central Europe to regionalna jednostka działająca w ramach Deloitte Central Europe Holdings Limited, członka Deloitte Touche Tohmatsu w Europie Środkowej. Usługi świadczą spółki zależne i stowarzyszone z Deloitte Central Europe
Holdings Limited, które stanowią odrębne i niezależne podmioty prawne. Spółki zależne i stowarzyszone z Deloitte Central Europe Holdings Limited to jedne z wiodących firm świadczących usługi profesjonalne; zatrudniają łącznie ponad 4000
pracowników w ponad 30 miastach w 17 krajach Europy Środkowej.
O Deloitte w Polsce
W Polsce usługi na rzecz klientów świadczą: Deloitte Advisory Sp. z o.o., Deloitte Audyt Sp. z o.o., Deloitte Doradztwo Podatkowe Sp. z o.o. oraz Deloitte Business Consulting SA (wspólnie określane mianem „Deloitte Polska”), będące jednostkami
stowarzyszonymi Deloitte Central Europe Holdings Limited. Deloitte Polska jest jedną z wiodących firm doradczych w kraju, świadczącą usługi profesjonalne w pięciu głównych obszarach: audytu, doradztwa podatkowego, konsultingu, zarządzania
ryzykiem i doradztwa finansowego
za pośrednictwem ponad 1000 profesjonalistów z Polski i zagranicy.
Więcej informacji można znaleźć na polskich stronach internetowych: www.deloitte.com/pl.
W przypadku projektów w skali regionalnej oraz przedsięwzięć wymagających wsparcia na poziomie regionu usługi świadczy Deloitte Central Europe Limited, firma stowarzyszona Deloitte Central Europe Holdings Limited. Deloitte Central Europe
Limited jest jedną z wiodących firm świadczących usługi profesjonalne w dziedzinie doradztwa podatkowego, doradztwa gospodarczego, zarządzania ryzykiem i doradztwa finansowego.