CSR: Leading the way Sustainability

Debate continues to rage on the legalities and ideology of Corporate Responsibility and Sustainability following the Beerworth/Bostock exchange in the December/January 2004 issue of Company Director.

CSR - Leading the way. There are significant fiscal benefits to putting CSR and industry sustainability on the corporate agenda, writes Ian Dunlop. Debate continues to rage on the legalities and ideology of Corporate Responsibility and Sustainability following the Beerworth/Bostock exchange in the December/January 2004 issue of Company Director.

In January 2005, The Economist weighed with a very sceptical survey on CSR which made the point that:

"Managers, acting in their professional capacity, ought not to concern themselves with the public good: they are not competent to do it, they lack the democratic credentials for it, and their day job should leave them no time even to think about it." (The Economist CSR survey was reproduced in full in the March issue of Company Director)

The World Economic Forum of business leaders, meeting in Davos in January 2005, took a contrary view, selecting six "tough issues" as top priorities for the global agenda at its opening Global Town Hall meeting, namely:

1. Poverty

2. Equitable globalisation

3. Climate change

4. Education

5. Middle East

6. Global governance

Hardly a typical business agenda given the dominance of social and environmental issues. However it reflects the extent to which these issues are now impacting directly on the ability of business to operate effectively, and the seriousness with which they are being taken by forward thinking business leaders.

Meanwhile at the coalface, many businesses here and overseas are moving beyond debate and simply doing it, ideology notwithstanding. This became very clear at the 6th National Business Leaders Forum on Sustainable Development in Melbourne last month.

The forum launched the results of the 2005 Corporate Responsibility Index, published in The Age and Sydney Morning Herald on April 4. The results of the inaugural CRI in Australia were published in September 2004.

Normally, the CRI operates on an annual cycle. However, in order to secure additional value from the process, the reporting period this year onwards has been synchronised with that of other participating countries, such as the United Kingdom and Japan.

Companies can now make a reliable assessment of their relative performance when compared to a universe of international companies both within their sector and more generally.

In addition the 2004 questionnaire was slightly revamped to "raise the bar". This was achieved in two ways. First, a number of generic questions were expanded to require more specific and detailed evidence of actual practice. Second, the scoring framework was altered in order to give much greater weight to performance and impact. CRI is now more attuned to the actions of companies - and not just their strategic planning prowess

Twenty-seven Australian companies volunteered to complete the second CRI in Australia. A core group of 20 companies participated in the Australian CRI on two occasions. Seven new companies completed the CRI for the first time - with six taking a break in year two.

Top performers were Westpac, BP, BHP Billiton, Rio Tinto and Toyota. The decision to align the Australian CRI with that of the United Kingdom delivered one immediate outstanding result. Westpac topped the scores in both Australia and the UK - demonstrating that Australian companies can

compete in this area with the world's best.

Other companies, like Foster's and IAG Australia, showed significant improvement - demonstrating what can be achieved, even in the short term, when building from a solid base.

But perhaps the greatest accolade should be reserved for those companies, like Suncorp Metway, that have stuck with the CRI process - even though they are not (yet) at the top end of the table.

It's far easier to participate when general acclaim is the most likely result than to do so knowing that the results will reveal a daunting list of further challenges. The companies that persist demonstrate gritty leadership of a kind that will hopefully inspire others to embrace this measurement as the first step to improving performance.

Apart from the CRI, the forum focused this year on the practicalities of sustainability.

Keynote speaker Hunter Lovins, a long-time champion of sustainable development and co-author, with Amory Lovins and Paul Hawken of Natural Capitalism, gave a wide-ranging global perspective on the wave of innovation now gaining momentum as increasing numbers of businesses find the case for sustainability compelling in hard-nosed economic terms.

Most of these initiatives were market-based, as they should be, but the market, while good at allocating resources in the short term, was not designed to protect our grandchildren.

The authors say government has a critical role to ensure that market structures are adjusted to take into account longer term considerations as societal values change.

Some companies were undoubtedly taking a somewhat hypocritical view of sustainability, wanting to jump on the bandwagon without having real

commitment. But the authors say this should not cause too much concern for: "Hypocrisy is the first step toward real change. Before long, sustainability will be the hallmark of good corporate management".

Hunter believes Australia has the potential to become the worlds' sustainability superpower if business and government cooperate to catch the current wave of innovation.

The latter point was underlined with the launch by former governor-general Sir Ninian Stephens, of a new book The Natural Advantage of Nations - Business Opportunities, Innovation and Governance in the 21st Century , which was inspired by Natural Capitalism.

Karlson Hargroves, Michael Smith, Cheryl Paten and Nick Palousis, a team of young Australian scientists and engineers known as The Natural Edge Project, hosted by Engineers Australia, edited the book.

The team was formed to respond to the need for professional development in the area of sustainability. The book is an inspiring overview of the 21st century business case for sustainable development, incorporating key work from more than 30 of the world's leading sustainability practitioners. It is firmly based on competitive advantage theory and practice which, combined with sustainability, demonstrates how the well-being of society and the environment can be improved while driving innovation in an increasingly competitive world. It also demonstrates how these issues have seized the attention of younger Australians, a good omen for our future. (The AICD Bookshop is in the process of obtaining copies).

As can be expected in conferences of this nature there were some personal conversion stories which was neatly encapsulated by one US executive who, after years of patiently justifying his (unsustainable) approach now asks other executives "how do you defend your business model - how is it cheaper to destroy the Earth than take care of it."

But the speaker most relevant to directors wrestling with this issue was Michael Anderson, director Australian Equities and head of sustainable funds, AMP Capital.

The argument of what's in it for me except increased costs of compliance and a distraction from core business performance received a bit of a knock when Anderson outlined recent research showing that strong financial performance can be linked to good corporate responsibility.

Since its inception, the AMP Capital Sustainable Australian Share Fund has consistently outperformed the ASX 200 Index.

The research looked at the two criteria used by the fund when assessing the socially responsible nature of a company, namely CSR and industry sustainability (IS). The results showed that the impact of CSR was positive. Companies with a higher CSR rating

outperformed by more than 3 percent a year. The impact of IS was less clear and would need further longer term study.

Certainly not conclusive but as the willingness of companies to become involved in the CSR Index shows, there are benefits to putting CSR on the corporate agenda.

* Ian Dunlop, formerly a senior energy executive and CEO of AICD, advises internationally on governance and sustainability issues. itdunlop@ozemail.com.au

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