Social, Ethical and Environmental Impact of Tesco Plc - Essay Example

? Accounting, Society and the Environment Introduction Business is becoming very competitive and companies have to offer value for the stakeholders in order to succeed. Through the concept of corporate social responsibility (CSR), companies have been forced top look beyond the economic returns of the business but also consider their impact on the environment and community around them. The importance of value creation through positive stakeholder relationships has an impact of significantly increasing the profitability of a firm (Edwards 1998). The increase in environmental legislation and the emerging trends of ethical consumers, the incorporation of social responsibility in the business strategy is more of a necessity in the competitive market. This report seeks to analyze the annual report of Tesco Plc for the year 2011 to investigate the way it accounts for its social, ethical and environmental impact. The report further compares the performance of the company with other companies in terms of environmental policies. Another aspect that is considered in this report is the nature of reporting that the company uses and recommendations for future strategies to improve on the presentation of the company’s stakeholder’s strategy. 2. Business Review of Tesco Plc in 2011 Tesco is the most dominant retailer in the United Kingdom with a market share of about thirty percent. The company has a presence in several countries. It reported revenues in excess sixty billion in the financial year 2010/2011. The core purpose of Tesco Plc is to accord quality service to customers. The company’s goals are aligned to this vision that is clearly aimed at giving the company a competitive advantage in its market. The company has underpinned its commitment to the community and the environment by having a goal to put its responsibilities to the communities that they serve. To achieve this goal, the company has broken down its policy on environment and social issues into five key performance indicators that it uses to analyze the impact of its strategies. The key performance indicators on the social and environment issues for Tesco Plc for the period ending 2011 are analyzed below. 2.1 Responsibility in Buying and Selling of Products The customers require safe and affordable products. The company also lays emphasis on ensuring that the products that it sells are sourced in a way that is robust and meeting the required standards. Tesco has laid out strategies to help improve its relations with the suppliers through a program called “Trading Fairly”. However, the impact of this program cannot be quantified because the metrics of measuring the results are not available. In fact, it can be argued that these programs are publicity stunts since the same buying processes were used prior to the introduction of this program are still in place. A case in point is the widely documented practice by Tesco Plc to buy potatoes from the grey market instead of the official supply chain through Tyrells Crisps. The other issue of fair trade has been recently brought to the fore due to the price undercutting by supermarkets on bananas. The price wars between Tesco and Asda almost brought down the banana industry. The supermarkets opted to lower their margins and in turn reduced the amount they pay to their suppliers. According to Michaels (2004), the demand for cheaper products by supermarkets has become a ruthless way by the supermarkets to exploit the supplier. The net effect of lower supplier prices is that the workers in the farms are paid much less and this impacts negatively on the society. Sainsbury was the first supermarket to announce that it will sell one hundred percent fair trade bananas. Other supermarkets have followed suit but it is worth noting that Tesco was reluctant to commit to this cause. The increased money paid to the suppliers will have a positive impact on the community where the products are sourced from. The style of disclosure of the responsible sourcing and buying of products the Tesco uses is quite vague and not extensive. The company merely states that it is committed to fair trade but it does not give the numbers to substantiate the efforts it is making. Other supermarkets such as Sainsbury actually report on the exact impact of the policies of fair trade. For example, Bremann (2006) points out that Sainsbury sells about ten million bananas per week and the money paid to suppliers helps in community projects such building schools and health centers in the Caribbean countries where the bananas are sourced from. Tesco has also shown commitment to promote the local communities in which it operates. The company tries as much as possible to buy locally produced products in order to promote the local communities. In the United Kingdom, the company achieved sales of one billion pounds for locally sourced products. This is a positive step for the company in ensuring that the local communities benefit from their operations. 2.2 Caring for the environment According to Piacentini (2000), the major issue of retailers in the present times concerns the impact of their operations on the environment. Tesco clearly outlines the fact that it has a big role in tackling climate change. The efforts by the company are both on its internal processes and in working with the other stakeholders to ensure that a sustainable environment is created. In 2010, Tesco was named as the top retailer in the Carbon Disclosure Project in the United Kingdom. The increase in the carbon emitted by the company was projected at 1.7 percent while the net sales grew by over eight percent. This shows that the company has adopted sensible environmental impact strategies. Tesco is leading its competitors in terms of environmental issues. In 2009, it opened the world’s first zero carbon emission supermarket in Ramsey, Cambridgeshere. The company has followed up on this trend by opening other international zero carbon emission stores in various locations. Utilization of natural refrigeration processes and the use of renewable energy sources is also an environment conservation strategy employed by Tesco. In fact, the company has a pledge of becoming a zero carbon emission supermarket by 2050. In the year 2011, the company reduced its carbon footprint by seven percent. In as much as Tesco has made conscious efforts to encourage environment friendly practices, the company has failed to adopt the concept of using building materials that are eco-friendly. Most of Tesco’s stores are built with materials that have harmful environment impact. The idea of making the stores carbon free is commendable but the process of environment protection should be from within and without. 2.3. Providing Customers with Healthy Choices. Tesco has a one hundred percent nutrition labeling on eligible own brand food lines in all the markets it operates in. It offers Healthy Eating brands that comprises of foods that have a balanced amount of fats, salt and sugars. This is a consequence of concerted efforts in providing customers with healthy choices. In 2011, the company managed to encourage over seven million staff and customers to get active across all the markets that it operates in. The “Get Healthy with Tesco Lotus” program helped millions of people to get active through an aerobics competition. This initiative was aimed at sensitizing people about the benefits of healthy eating and living an active lifestyle. Tesco takes responsibility to give its customers and staff the appropriate information to make healthy choices. It is obvious that a healthy community will help the company to grow and be sustainable in the future. The controversy that Tesco has generated due to lawsuits concerning food issues raises doubts on whether the company is truly committed to its policy of healthy foods. Tesco has been accused of breaches including selling of expired food stuffs and blatant falsification of temperature records. The Food Regulatory Authority had to close one of Tesco’s stores in Ireland due to issues concerning a breach in the food regulatory standards. Some Tesco branded products have also been recalled due to similar reasons. The other factor that raises queries on the commitment of Tesco on health issues is the fact that it sells fat products in its stores. Tesco labels the fat and calories contents on its products as points this was the subject of a lawsuit by Weight Watchers. These factors are evidence that Tesco lacks the absolute commitment to champion for healthy products in its stores. 2.4 Actively Supporting Local Communities Local communities that are around the Tesco stores serve as the homes of almost all the stakeholders. This includes staff, customers, suppliers and even investors. Tesco’s business strategy is to become more than just a store to the stakeholders. The company should be concerned about the welfare of its community. The implication, therefore, is that Tesco has to interact positively with the members of the community on issues that matter to them and looking for mutually beneficial solutions. This goes a long way to ensure that the company makes lasting contributions to the society and guarantee its sustainability. By doing this, Tesco stays true to its values and helps to build their customer’s lifetime loyalty. The company exceeded its target of donating at least 1 percent of accrued profits to needy cases. In the year 2011, Tesco donated over sixty four million pounds which has been given to charities and other nongovernmental organizations pursuing good causes. Tesco also raised seven million pounds for the United Kingdom charity of the year. The concept of community champions is also another initiative by Tesco to actively support the communities around. The community support initiative involves employees willing to coordinate activities in the local areas. The company offers support to this community champions in terms of logistics and other financial assistance. Tesco boasts of over six hundred and fifty community champions across the group operations. In essence, the company offered over a million hours volunteer target, exceeding the years target. This reinforced the company’s position as the most supportive retailer of its local communities. . Last year in the Czech Republic, the Tesco Foundation shared over twenty three thousand pounds with nongovernmental organization to help in charitable causes such as helping disadvantage children and the disabled persons. However, it is difficult measure the direct impact of the community initiatives by Tesco. For instance, there is no regulation on the amount of money that a company is supposed to give back to the society. The target of at least one percent of pre-tax profits by Tesco is self imposed. Other companies give back to the society in different ways such as through rehabilitation of public property. Therefore it is not easy to determine which company gives back the most since there are no clear metrics in place. The benefits of reduction in waste and also green projects are the other kinds of giving back to the society which cannot be easily quantified. There has been concern that Tesco actually uses the charity events it organizes as a publicity stunt. The company name features prominently in the sponsorship materials and ultimately, the money that is collected is very little compared to the amount of brand awareness and market penetration that it attains. Ultimately, the jury is still out there on the true intentions of charity and community events that are organized by corporate companies. 2.5 Creating Meaningful Careers and Jobs Tesco is the largest employer in the supermarkets industry in the United Kingdom with about three hundred thousand employees. The company employed about twenty one thousand employees in 2011. This employees support their families and the society at large hence making Tesco an important player in sustainable livelihoods. The company has a policy of guaranteeing a face to face interview with all applicants hence ensuring that it gives a fair chance to all. Tesco has also partnered with its Regeneration Partnership stores to secure jobs for the longterm unemployed people who are searching for jobs. This helps to get them back to work and earn some income. The remuneration that the company offers is very competitive. Research by Peterson (2010) showed that Tesco is the overall top employer compared to other supermarkets. On the other hand, Tesco has been accused of exploitation especially in the emerging markets. For instance, the company pays a small amount of salary to the workers in its factories in Bangladesh. Even though the minimum wage in Bangladesh is low, it is only fair that the company should pair wages in a standardized manner. Tesco also announced that it was further reducing sick pay allowance. This is unfair to the staff since they are forced to be at work even when sick or else their income will be cut. 3. Challenges Facing Tesco to Improve on its Disclosure Reports There is considerable lack of quantitative analysis in the disclosure reports by Tesco. The company is more inclined towards reporting the qualitative aspects of its environmental and societal impacts. It is necessary for the disclosures to include actual figures enumerating the company’s progress. Also, comparative data across the industries and competitors should be made available. This data is necessary to gauge how Tesco compares with other companies in terms environmental initiatives. The other sector of the disclosures that need improvement is concerning the use visual data analysis. The disclosures were devoid of sufficient graphs, percentages and other statistical figures. This reduces the understandability of the report thus negating the impact it may have on its audience. Reporting in continuous prose is difficult to follow and becomes monotonous. The disclosure format that is used by Tesco does not attempt to show any direct compliance with the Environmental Reporting Standards (ISO 9000, ISO 16000, ISO 18000 and ISO 26000). This is not appropriate since there is need to link the reports of the company with the regulatory requirements. The company reports give a presentation that is entirely based on their internal metrics without any reference to the set standards in the industry. Therefore, evaluate if the stipulations put in place actually meet the conditions set by the regulatory framework or international standards. It is essential to cross reference the internal reporting with the set guidelines for clarity. The report on environmental impacts and social implications has not been authenticated by any external auditor. The disclosures do not confirm that the results on environmental impact were actually done by an environmental auditor. For credibility, the company needs to hire the services of both external and internal auditors. 4. Recommendations The policy of introducing healthy choice to consumers is of great value especially in this generation that is grappling with lifestyle diseases. It is recommended that the company should introduce the healthy eating options to the lower end market segment. This guarantees everyone chance to obtain foods that are healthy and affordable. Currently, the healthy choices available are mostly suitable for the high end market leaving the majority of consumers with no viable option. The other recommendation is that Tesco should engage in online presence and capitalize on the potential of social media. Internet has revolutionalized the world and the advances in social networking sites offers an opportunity to engage the consumers more intimately. The company can use its online presence to initiate conversations that can improve the value it offers to the stakeholders. For instance, the company can use social sites to ask for opinions on which community project to support on a given place. Most international companies have already tapped into the internet for business ideas through the concept of crowd sourcing. This is a cheap way of obtaining innovative ideas and also helps to tap on a large pool of global expertise. Finally, Tesco should work on ensuring that the entire supply chain is conscious of the policies of environmental conservation. The company should work hand in hand with the suppliers to guarantee that environment friendly policies are implemented from the supplier up to the consumer. This will help to evaluate the real environmental and societal impact of the products that Tesco sells. 5. Conclusion It is evident that businesses have an obligation to be responsible corporate citizens. This entails the adoption of strategies that create value for all the stakeholders. Successful firms have to realize the importance of environmental and societal impacts on their business. Tesco has made significant progress in ensuring that environment concerns are addressed in a satisfactory manner. The company has made considerable gains in cutting down on its carbon footprint by reducing the carbon emissions from its stores. Also, the company has played an active role in community development through corporate social responsibility initiatives. Tesco has been at the forefront of healthy eating and it has a clear policy of providing consumers with healthy choices. It is necessary that the company reinforces its environment and community policy further and improve on the areas that have been deficient. Bibliography Bevan, J. 2005. Trolley Wars The Battle of the Supermarkets. London. Profile Books Ltd. Brady, J. 2005. Environmental Management in Organizations: The IEMA Handbook. London: Earthscan. Bremann, S. K. 2003. Corporate Social Responsibility. New York. Pearson Publishers. Clay, R. 1999. Environmental Disclosures. London. Oxford Press. Defra, K. 2006. Environmental Key Performance Indicators: Reporting Guidelines for UK Business, London: Department for Environment, Food and Rural Affairs. Edwards, D. 1998. The Link between Company Environmental and Financial Performance. 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