United Nations Global Compact and Global Reporting Initiative. Why Corporate Social Responsibility Matters - Essay Example

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Assesment 3 – Written Assignment United Nations Global Compact and Global Reporting Initiative Why Corporate Social Responsibility Matters Submitted by Table of Contents Introduction...........................................................................................1 The United Nations Global Compact (UNGC).....................................1 Case Studies Examples from UNGC...............................................................3 The Global Reporting Initiative (GRI)..................................................4 Case Studies Examples from GRI...................................................................4 Recommendations for Effective CSR Audits........................................6 Conclusions...........................................................................................8 References.............................................................................................9 Corporate Social Responsibility Matters Introduction Everyday, many people enjoy so many things offered by corporations. From goods, to services, food, among others, it affects the lives and livelihood of mostly the world’s population. However, many people denounce corporations for what they think they are: a “fictitious legal person or an artificial legal entity” distinct from its owners and officers, which seek perpetual existence (Hessen, 1979). Investors in corporations are not held accountable for whatever wrong or right decisions the group as a whole would do, since their liability is limited to their investments. Thus, whether the corporation does more harm than good or not by the products that they sell, it can be sued by its own entity alone, but the owners and investors would not be affected under state laws. These corporations will continue to exist as long as the customers choose to patronize their products. But during the recent decades, there has been some changes happening to the structures of some corporations. Many start to fall if they didn’t give back to the people that help them get established. Also, doing harm just to gain profits becomes a bad norm, thus the creation of a system that would balance quality of life within owners and stakeholders of corporations as well as the people they serve. This method of doing business is called Corporate Social Responsibility, or CSR. By the definition of Kotler and Lee (2005), “corporate social responsibility (CSR) is a commitment to improve community well-being through discretionary business practices and contributions of corporate resources.” They mentioned “discretionary” since it would still be the choice of corporations as to whether they will voluntarily commit to implement CSR in their business or not. A related term to CSR would be CSI, or corporate social initiatives. These are major activities undertaken by corporations to support social causes and to fulfil commitment to CSR (ibid.). With such ideals, it is portrayed that CSR would not only benefit the corporations, but also the government, its people and the environment. In this report, two examples of large groups that promote CSR around the world would be presented. First is the United Nations Global Compact (UNGC) and second is the Global Reporting Initiative (GRI). Both groups believe that sustainability and development can be attained by having corporations to voluntarily have transparencies in their company regulations and business plans as well as the development of beneficiary communities through transactions that promote social empowerment. The United Nations Global Compact (UNGC) The United Nations Global Compact or UNGC was launched in July 2000. It is the largest voluntary corporate sustainability initiative in the world, with over 8,500 signatories in 135 countries. The primary goal of the UNGC is to advance two complementary objectives (UNGC, 2011): To mainstream the ten business principles in business activities around the world; and Catalyze actions in support of broader UN goals, including the Millennium Development Goals (MDG’s) By putting business as the main driver of globalization, markets, commerce, technology and finance advance in ways that benefit economies and societies in all levels. As mentioned in the guidebook for potential CSR practitioners, the role of the UNGC in promoting CSR to private sectors is by providing dialogue between business and stakeholders to come up with solutions to critical challenges, which cover a wide range of issues, such as sustainability at the global, regional and local levels. Also, there is a provision of specialized work streams that touch critical issues such as climate change, water supply, management education and responsible investment. The UNGC asks companies to embrace, support and enact the ten business principles, which can be summarized in their four established core values, which are: Human rights Labour Environment Anti-corruption By living up their four core values, the UNGC brings together all the relevant members of the modern society mainly, government, business sectors, labor and civil society to advance universal principles in the areas of human rights, labor standards, the environment and the fight against corruption. The following two case studies show how the influence of the UNGC made an impact not only on the private companies that decided to integrate corporate social responsibility into their business ideals, but also on the communities that directly benefited from their actions: Case Study #1: Adequate Housing for the Less Fortunate One of the basic human rights as stated in the Declaration of Human Rights (UDHD, 1948), Article 25 Section 1, is the right to have adequate food, shelter, clothing, medical care and social services. Unfortunately, not all of the world’s population has access to all, if not any of these rights. In Mexico, a shortage of housing affects the lives of no more than 20 million people (UNGC, 2007). Their houses are mostly made from readily available materials that easily get damaged. But with the initiative of a Mexican-based global building-solutions company, CEMEX, as well as with the facilitation of a CSR template from the UNGC, they were able to help a low-income community of around 90,000 residents in Mesa Colorada, on the outskirts of Guadalajara, to help the citizens build their own homes without being too costly for them, and at the same time keeping the company afloat. For this to happen, CEMEX sent some of their employees and consultants to Mesa Colorada in order to observe the place and identify the barriers to adequate housing. Through the program called Patrimonio Hoy (PH) by CEMEX, they were able to give low-income families access to building materials, technical support as well as warehousing facilities that normally wouldn’t be readily available. Next is the lending system, designed to be simple, innovative and effective. Families pool together and save their money for payment of building materials for ten weeks. They receive materials equal to how much they paid, build the house, then save up again for another ten weeks, receive the equal amount of materials, and so on, for a cycle of up to 70 weeks. Not only would it be easier to pay, since they need not to dole out so much at one go, but also ensures the consistency of payments, because if one group fails to pay on the agreed upon date, services to the whole community would be halted. This kind of lending strategy by PH has proved that 70% of the former cost of materials created durable homes for many less fortunate families at a third of the usual time needed to build a house, and at the same time having a credit payment rate of above 99%. . Around 15% of families that were under the PH program were able to build and additional room, used for business. Such program promotes family unity as well as a sense of independence and achievement for low-income communities. The success of PH was not only seen in Mexico, but in other countries as well, like Colombia, Venezuela, and Nicaragua. Thus showing that PH can help a company grow its business and encourage community development at the same time. Case Study #2: Clean and Green Financing Banking and finance normally wouldn’t be in anyone’s mind when the words “environmental considerations” are heard. But Australian company Westpac Banking made it possible. By focusing on increasing their energy efficiency and reducing resource consumption, Westpac was able to decrease their direct greenhouse emissions by over 45%, since 1996 (UNGC, 2007). Also, reduced operating costs saved not just money but also tons of paper and the planet, by preventing additional greenhouse gas emissions. To be able to do everything, Westpac had initial plans and goals. In 1992, the company published an environmental policy statement, which was later revised in 2001. At first, Westpac focused on minimizing its own footprint but apparently their clients would also have a big part to play in downsizing their carbon emissions as a whole. And this happened, by integrating environmental considerations into their products and services, as well as making the experience simple and enjoyable for their customers. One of these is through discounts and rebates on the use of environmentally friendly initiatives such as home insulation, green electricity, and the like. But the move that had the greatest impact so far was letting customers choose to have their bills sent online, instead of still sending them via mail every month. Named the E-statement program, it reduced Westpac’s operating costs by as much as $800,000, saved 41 tons of paper, and prevented more than 103 tons of greenhouse gas emissions. With the obvious financial benefits at hand, Westpac has used the integration of environmental principles into mainstream investment and lending activities in such a way as to provide better services than the competition. Since customers are more drawn to companies that make a difference to the environment, this would help Westpac achieve even more success in the long run. The Global Reporting Initiative (GRI) The Global Reporting Initiative or GRI was founded in 1997 in Boston. Its roots lie within the US-Non Profit Organizations the Coalition for Environmentally Responsible Economies (CERES) and Tellus Institute. After creating the draft for its Guidelines in 2000, the GRI was separated from CERES as an independent institution. The United Nations Environmental Program (UNEP) embraced GRI and invited UN Nations to host it. The Netherlands was chosen and is now the headquarters of GRI. The main priority of GRI is to make sustainability in corporations as something mainstream. Since awareness and uptake of sustainability reporting has increased in the recent years, many organizations now consider it to be a beneficial tool in long-term success. The current guidelines of GRI is still being developed in order to address requirements for sustainability data, and to enable reporters to provide relevant information to various stakeholders. There is also a need for disclosure of sustainability reporting, as mentioned by GRI: Establishing basic sustainability disclosure requirements brings clear benefits – for business, investors and society at large: Measuring sustainability performance enables organizations to identify opportunities to improve operations, and avoid risks to the long-term value of your organization The ability to manage sustainability impacts helps organizations preserve and increase their value Investors and analysts gain vital insight into organizational performance, and optimal investment potential  Transparency increases trust – stakeholders and civil society can respond to comparable and standardized information Organizations can mitigate negative impacts Also, according to GRI, Markets will be threatened by new factors and success measured against tomorrow’s needs, hence, the need for more transparency in the long run. The following are two case studies that involve large corporations in doing a test run of CSR in their business operations, as well as how they managed it, or made improvements on their methods. Case Study #3: A Sportlifestyle for a Cause PUMA, a well-known brand due to their products that aim to put sports-oriented people at their best, undertook CSR in order to contribute to a better world. Their CSR initiatives involve working on environmental and social issues, supporting global peace initiatives and supporting artists and creative networks. An interview in 2011 with the head of PUMA.SAFE Global (environmental initiative group), Stefan D. Seidel relates his strategies on how to practice sustainability management reporting as well as the benefits of building sustainability reporting: “Together with the four keys of our PUMAVision namely being fair, honest, positive and creative in everything we do, we are working towards very ambitious sustainability targets for the whole company including aspects of design and development, manufacturing, transportation, usage phase and end of life. In order to live up to our ambitious targets in the field of sustainability we need to be able to benchmark our performance over time and with our competitors in a transparent way. A GRI-based and externally verified sustainability report is an important step to ensure the necessary transparency both within PUMA and towards our external stakeholders when reporting about the challenges and successes of our work in the field of sustainability.” An example of how PUMA was able to encourage their suppliers on undergoing sustainability reporting process is when an African supplier, Impahla Clothing got inspired to act after learning about climate change during their participation in the pilot project with GRI. Without the intervention of PUMA, Impahla Clothing decided to become carbon neutral and to submit sustainability reports on a regular basis. With such action, PUMA gave Impahla Clothing a status of “Strategic Partner”, which means a preference for them upon ordering of supplies. Unfortunately, having transparency from the supplier level can be very hard especially in countries like China, India or Bangladesh, where working conditions of the majority of the population is different in developing countries. As much as possible, PUMA only works with the best suppliers in such countries and increase their standards gradually over time. Being strategic partners with PUMA requires them to submit sustainability management and reporting in order for both parties to benefit fully from CSR. It is projected that in two years time, all of the relevant suppliers of PUMA would be implementing not just their CSR initiatives but also working with Key Performance Indicators that the corporation laid out for them. This is to ensure that PUMA would be working side by side with other smaller groups and companies in a sustainable and professional way. Case Study #4 Performance Improvement through Transparency Measures Established in 1976, Energias de Portugal, or EDP is a large European operator in the energy sector whose clients include the following countries: Portugal, Spain, France, Belgium and Poland. It is the largest Portuguese industrial group and has a very important role in the economy of Portugal. As quoted by GRI in 2011 from Jose Figueiredo Soares, Director of Sustainability and Environment in EDB, self declarations on sustainability performance, if they reference a standardized and recognized framework model and are externally verified, are a generally more efficient way for a second party to evaluate compliance when compared with the exclusive use of monitoring and auditing practices. Electricity is not accessible to more than 20% of the entire population of the planet, and EDP addresses that problem by integrating sustainability management in both its decision-making as well as in their operational processes. There is a transparent disclosure of the performance of EDP in order to maintain the trust of their clients as well as their stakeholders. Also, EDP considers the report of sustainability management in evaluating actual and potential suppliers, especially when submitted to third party verifiers, which would be taken into consideration when choosing potential power suppliers or retaining ones already in partnership with EDP. Such transparencies required right from the start of the partnership would reduce the risks of deriving sustainability from supply chains that normally would not divulge most of their practices. In the future, aside from sustainability management reports required by EDP to all its partner groups, it shall become mandatory that environmental management such as green house gas emissions, water use and life cycle assessment practices be also available for easier risk assessment to new suppliers as well as current business partners. Also, such disclosures would help improve management practices of suppliers under the guidance of EDP, which would help suppliers capitalize in their effort and become leading examples within their respective sectors. Recommendations for Effective CSR Audits With all the promotions for better management methods come criticisms from other sectors. In a report by Nina Bandi in 2007, it was shown that although CSR may help alleviate poverty in lower-income places and at the same time provides a win-win situation among all nations concerned, this improvement might only be a press release effort to disguise the true nature of a corporation, which is profit-making. The initiative would only be superficial, but the issues at hand, like inequality would still be not addressed. Also, none of the stakeholders would be directly accountable to the public since there is no binding contract between them and the UN, thus there would not be a 100% assurance that CSR is being implemented fully by the corporation. For the success of CSR to happen, both the UNGC and GRI have implemented simple steps in order for an effective way to audit CSR in large corporations. As per reporting guidelines found in the GRI website: A sustainability report should provide a balanced and reasonable representation of the sustainability performance of a reporting organization – including both positive and negative contributions. Sustainability reports based on the GRI Reporting Framework disclose outcomes and results that occurred within the reporting period in the context of the organization’s commitments, strategy, and management approach. Reports can be used for the following purposes, among others: •   Benchmarking and assessing sustainability performance with respect to laws, norms,         codes, performance standards, and voluntary initiatives; •   Demonstrating how the organization influences and is influenced by expectations about         sustainable development; and •   Comparing performance within an organization and between different organizations over         time. There can also be an integration of reports with a corporate group that would bring together material information about an organization’s strategy, governance, performance and prospects in a way that reflects the commercial, political, social and environmental context within which it operates. Also, by fully disclosing the CSR methods of a company, it would help the beneficiary nation: Mitigate and improve companies’ effects on society, the local economy and the environment; Strengthen companies’ competitive position, domestically and internationally, by addressing key concerns from buyers and investors regarding the social and environmental quality of their business; Enable individuals and communities – as employees, voters, and civil society actors – to negotiate a better future for themselves. For the UNGC on the other hand, in 2011 they have developed guidelines for corporations to follow in six simple steps: 1. Commit – commitment to mainstream the Global Compact principles into strategy and operation 2. Assess – assess risks, opportunities and impacts across global issue areas 3. Define - define goals, strategies and policies 4. Implement – implement strategies and policies through company and across the supply chain 5. Measure – measure and monitor impacts and progress towards goals 6. Communicate – communicate progress and strategies and engage with stakeholders for continuous improvement As of now, more than 5000 companies have committed to integrating the six steps as well as the business principles in their strategies and operations. Even if the task of implementing all six steps would prove to be very difficult, especially in corporations that span across a wide and vast group of thinkers, by allowing a degree of flexibility in the implementation of all six would prove to be equally effective based on the needs of the corporation and its stakeholders. For example, by working two or more of the steps simultaneously, the company could earn even more innovative ideas on how to much more effectively implement all six steps in their region. By putting such companies at high profile, they could set as examples for other groups to be even more open with their expenditures as well as their plans for a more sustainable and profitable strategy in dealing with the competition. Another thing would be that more and more people would be have accountabilities since the supply chain would be fully disclosed, hence identifying the strong points as well as the weaknesses of a company. Conclusions This report tackled two examples of large groups that promote CSR worldwide. First is the United Nations Global Compact (UNGC) and second is the Global Reporting Initiative (GRI). The two groups believe that sustainability and development can be attained by having corporations to do voluntary declarations of their sustainability management reports in their company regulations, business plans as well as the development of less-developed communities and nations. Although there are some drawbacks to the implementation of CSR in large, multi-national corporations, it would take a great deal of effort and a considerable amount of time before these large business groups would grasp the idea of CSR. Not only them, but their partner groups should also help in the proliferation and implementation of CSR to fully reveal the corporation’s environmentally and socially sensitive missions, visions and goals of sustainable management and global empowerment. References Bandi, N. 2007. United nations global compact: impacts and critics. University of Geneva, Geneva: Covalence Ethical Quotation System. Global Reporting Initiative (GRI). 2011. Global action, local change. Amsterdam: Global Reporting Initiative. _____. 2011. About GRI. viewed December 28, 2011. https://www.globalreporting.org/information/about-gri/Pages/default.aspx Hessen, R. 1979. In defense of the corporation. Stanford: Hoover Institution Publication Kotler, P. and Lee, N. 2005. Corporate social responsibility: doing the most good for your company and your cause. Hoboken, NJ: John Wiley & Sons, Inc. UDHD Drafting Committee (Universal Declaration of Human Rights Drafting Committee). 1948. The universal declaration of human rights. 2nd Session of the UN General Assembly. Paris, France 10 December 1948. United Nations UNGC (United Nations Global Compact). 2007. United nations global compact: corporate sustainability in the world economy. New York: UN Global Compact Office _____. 2011. UN global compact management model. New York: UN Global Compact Office Read More