Corporate Social Responsibility as Smart Business in Changing Asia
The 2014 International Singapore Compact CSR Summit
16 October 2014, Singapore
It is an honour for me to deliver the keynote address at this CSR Summit. Let me start by congratulating the organizers for the theme you have chosen for this meeting— CSR: For Sustainable Growth Balancing Profit, People and Planet. The topic is both timely and relevant in our challenging times. Let me also congratulate the winners of the Young CSR Leaders Award. You have shown that it is possible to be successful through being socially and environmentally responsible—caring for people and planet.
My speech today will address CSR as Smart Business in Changing Asia.
- Why CSR is smart business?
- How is Asia Changing?
- What must Asian Governments and business do, to use CSR as a driver for Asia’s new prosperity and transition towards a more inclusive and sustainable future?
I. Why is CSR Smart Business?
CSR is essentially about the obligations of business to society and our environment. Despite widespread discussion, there continues to be discussion on what constitutes CSR, and how to define it. Business tends to see CSR as corporate philanthropy, a voluntary code of conduct, a risk management tool, and an effective branding and marketing strategy. Very few see it as a new business opportunity– a new business model for the globalizing economy. Most see it as a cost rather than an investment. Opportunity or cost, it is now apparent that in order to remain relevant and engage with increasingly varied stakeholders across natural boundaries, business must grapple with CSR. Doing nothing or “business as usual” are not options.
In the age of globalization, corporations and other business enterprises are no longer confined to the boundaries of the nation states. This unprecedented predominance of business operating across boundaries has led civil society, some governments, and even investors to demand greater accountability and transparency from global business. In the wake of the current economic crisis, and a steady stream of corporate scandals, crises of corporate governance have pushed CSR from the margins to the boardrooms of corporations. World leaders have expressed their belief that responsible business practice will be critical to restoring public trust in the global financial and economic system. In this changing environment, Asian businesses are beginning to realize that their long-term profits and sustainability depend upon how smartly they invest in the societies of which they are a part and the environment which sustains them.
i) Smart Business Responds to Stakeholders’ Expectations
Corporate Social Responsibility (CSR) matters for business because their key stakeholders expect them to practice it. The modern business model seeks not only to increase market share but to increasingly widen market itself. It is therefore smart business to capture different stakeholder value by considering the wider community of stakeholders in businesses, and responding to their expectations.
Consumers are showing increased interest in supporting responsible business practices, as witnessed by the rise of ethical consumerism. They are demanding more information on how companies address risks and responsibilities related to social and environmental issues. Increasingly corporations wanting to access global markets or participate in international supply chains will limit their growth potential if they lack the competency to handle these demands.
Civil society organizations (CSOs) are leveraging the power of the media to increase their scrutiny and collective activism around corporate behaviour. Advances in ICT assist external stakeholders in more effectively tracking and discussing corporate activities. These same technologies allow them to quickly assess and profile business practices they view as either problematic or exemplary. Multinational businesses are now being asked to examine their own internal practices as well as those of their entire supply chain.
Investors are increasingly looking beyond the short-term financial performance of a company. They are not only interested in their financial returns, but also in the practices that ensure business continuity. A number of serious and high-profile breaches of corporate ethics have negatively impacted employees, shareholders, and communities– as well as share prices. This has increased the demand for good corporate practices by investors and shareholders through socially responsible investment practices. A CSR approach can help improve transparency, accountability and contribute directly to risk management strategies for business, and therefore to sustainable growth.
ii) Smart Business Creates Both Value and Values
Corporate Social Responsibility and Human Rights matter for business because it creates both value and values. Today, creating social and environmental values is a prerequisite to creating business value. It is about how businesses make their money, not only about how they spend it once it is made. Using short-term profit to drive business behavior is short sighted. Increasingly, successful global businesses are finding new ways to grow, that do not damage our social fabric, cultural heritage nor the environment for future generations. They are changing strategy to incorporate a triple bottom line to create both value and values to sustain their dynamism—people, planet, profit.
As value creation, caring for people and planet, CSR can play a major role in building good brand perception as well as a company’s reputation. Businesses who actively pursue CSR strategies can gain a competitive advantage in the global market. Several famous brands have now built their business on ethical values and differentiate their corporate identity by making socially-responsible practice their commitment.
There is growing evidence that CSR can create shared values by incorporating the “consequence of production ignored in pricing”. In today’s world, business needs to take into account the “tragedy of the commons” with the environment and our eco-systems under threat, with growing economic and social inequalities altering the political and social fabric along the fault lines of ethnicity, religion, and gender, and exacerbating social tensions and unrest. An economically, socially and environmentally insecure world is bad for business, for people and for our earth. We can no longer grow first and clean up later or grow first with “rights at work” later.
Business can be part of the solution rather than a problem if it promotes value driven partnerships with governments, CSOs, and communities, genuinely integrating the concerns of both labour and our fragile eco-systems into core business strategies. There is a need for different measures of costs and returns, for instance, which include the impacts of factors such as pollution, workers’ safety, staff well-being and community goodwill. Common ethical values and trust are measures which need to be valued and accounted for.
We need a new script that knows how to use “inclusiveness” and “sustainability” as drivers of growth and new prosperity. For example, even from a purely profit making perspective, CSR offers cost reductions related to the environmental management of operations. Most companies that reduce pollution and hazardous waste, reuse or recycle materials, operate with greater energy and water efficiency. This can result in significant cost savings in addition to avoiding ecological costs. CSR can also help drive innovation and, therefore, competitiveness. A well known example is Toyota’s response to concerns over automobile emissions which resulted in the development of a hybrid electric vehicle.
iii) Smart Business is Business you can Trust and Rely on
A recent study assessing 108 countries established a strong relationship between responsible business conduct and a country’s competitiveness. Countries that advance responsible business practices tend to be less corrupt and easier places to do business.
The United Nations Secretary-General, Mr. Ban Ki-moon, put it best when he said: “The objectives and priorities of the international community and the business world are more aligned than ever before…for business to enjoy sustained growth, we need to build trust and legitimacy…for markets to expand in a sustainable way, we must provide those currently excluded with better and more opportunities to improve their livelihoods.”
A business community upholding human rights commitments and maintaining good labour practices can create trust for consumers in advanced markets. This increases the competiveness of a country’s products as well as the number of jobs for the poor. The new concept of “Responsible Competitiveness” has been described by people like Pascal Lamy as “an essential ingredient for effective global markets, creating a new generation of profitable products and business processes underpinned by rules that support society’s broader social, environmental and economic aims”. Businesses and governments that encourage CSR will not only increase their international competitiveness, but will also promote a more inclusive and sustainable economic growth. In today’s globalised and changing world, the long-term value and success of business is inextricably linked to the integration of economic, social, environmental and governance issues into corporate management and operations. ESG or Environment, Social, and Governance are used today as criteria for social responsible investing. Asian businesses need to integrate these new approaches differentiating good business from bad, to assure future prosperity and long term sustainability in a changing Asia.
II. How is Asia Changing?
Asia has already undergone a historic transition. Over the last four decades, many countries both large and small have been able to accelerate their growth. Asia has reduced by more than half the population living in poverty from 52 per cent in 1990 to 18 per cent in 2012. It has created an expanding middle and educated class. This is a crux of the Asian Miracle—the generation of shared prosperity and the reduction of poverty in the shortest period of human history. However, the global development landscape that supported this miracle has changed.
The global financial crisis which started in 2008 has proven to be a watershed event—having changed many assumptions about the way the global economy has functioned in the past. In particular, it has become clear that the advanced economies of the world will find it difficult to play the role of growth poles for the developing countries of Asia, as they did in the past, given their priority of unwinding high-levels of debts. The economy powerhouses of Asia—China, Japan, India and significant economies like the Republic of Korea, ASEAN, especially Indonesia and Vietnam are rebalancing patterns of export-led economic growth in favour of domestic and regional sources to sustain their dynamism. This means that many of our countries are rethinking their development strategy to focus on generating new aggregate demand through increasing the purchasing power of the “bottom billion” through closing development gaps and improving well-being of people by investing in decent jobs, social protection, and poverty reduction initiatives. The policies to lift the “bottom billion” out of poverty and allowing them to join the mainstream of the regions’ consumers can contribute to sustaining the region’s economic dynamism for decades to come. However, the task is not easy and we need business to invest in more decent productive jobs.
Currently, while many parts of Asia are upbeat and modernizing, many countries and communities fall short of their potential because of the precariousness of jobs and the inability to generate secure and meaningful lives for too many people. Production systems and the location along supply chains define the nature and availability of jobs. With “Factory Asia” producing cheap goods for the world market, “the right to work” often sacrifices “rights at work”. This has led to the precariousness of work, as we saw with the collapse of Rana Plaza in Bangladesh killing 1,138 garment workers, mainly women.
The informal economy is also expanding as employment growth in the formal sector has been less than the economic growth rate. Formal sector work is becoming increasingly casual, flexible, outsourced, unregulated and contract based. In Thailand, in 2010, informal employment accounted for 63 per cent of total employment, in Indonesia 66 per cent, Philippines 75 per cent and Vietnam 85 per cent. This has real implications for workers, most of whom are women, migrants from rural or low income countries in terms of security of employment, conditions at work and health and safety concerns. Smart Business must invest in people.
Asia is also changing in the aftermath of the global financial crisis by tapping the potential of regional economic integration as a new driver of growth. Capability, resources and standards vary across countries, giving rise to complementarities and opportunities for mutually beneficial exchanges, which could be unlocked by enhancing economic integration. During my term as the Executive Secretary of ESCAP, I led the Commission to work on the four-pillar approach to regional economic integration, comprising: the movement towards an integrated regional market; regional connectivity for goods, energy, IT, and people to bring about shared prosperity; financial cooperation to close physical and social infrastructure gaps; and cooperation for addressing shared vulnerabilities and risks. Possibilities in each of these broad areas are immense, and provide tremendous opportunities for governments and business to work together and lead Asia in its next transformation, benefiting our people and our planet.
III. What Must Asian Governments and Business Do?
I have just returned from the historic climate summit convened by the United Nations Secretary-General in New York on the 23rd of September. It was the largest gathering of world leaders—Heads of States, CEOs of major corporations, leaders from the financial sector, and civil society. It was even more historic because of the interaction and commitments made between our governments, the corporate leaders, the financial community and civil society. The Summit delivered a very clear message—Climate Change is a global threat. It must be addressed through a new global partnership that eradicates poverty and transform economy through sustainable development. The current social, economic and environmental challenges cannot be solved by governments alone. They need a community of practice that provides concrete solutions on the ground. As the Secretary-General reminded the Summit “The human, environmental and financial cost of climate change is fast becoming unbearable… it is time for all hands on deck.”
The Climate Summit was therefore, essentially, a call to action, to better understand the once-in-a-generation opportunity for serious action. It was encouraging that together, governments and business agreed to move significant amount of their capital from “dirty investments” to “clean investments”. Over USD 200 billion was pledged to be moved in the next 14 months. The United Nations can be a platform to generate solutions on the ground but the ground must move and move quickly.
There is much that Asia can do. For example, Asians’ cities dominate and drive our economic transformation but in so doing they account for about 70 per cent of all energy use and emit over 70 per cent of all greenhouse gases. Most carbon emissions are derived from our building, transport, waste, fossil-fuel based energy and industry. The implication for people and our eco-systems are profound. So too are the benefits of innovation and investing to change our production systems and consumption pattern to limit our planet to less than 2 degree centigrade rise in temperature: cleaner air, water and food; healthy families and a more sustainable world across generations.
Asia Pacific is the most disaster prone region of the world. A person living in Asia Pacific is four times more likely to be affected by natural disasters than someone living in Africa, and 25 times more likely than someone living in Europe or North America. In fact 75 per cent of global disaster fatalities occur in Asia. In 2011 alone, economic damages and losses from disasters in the region total more than USD 293 billion. Coupled with economic shocks, disasters can wipe away years of development gains.
The cost of climate inaction is far greater than a cost of action, a compelling case for urgency. There is opportunity, for example, to bring to scale public-private partnership to develop technologies and markets to shape energy systems for sustainable development. This can be done by doubling the rate of energy efficiency, doubling the share of renewable energy while providing universal access to modern energy services for all. These are the goals of the United Nations Secretary-General’s campaign on “Energy for Sustainable Development” which we in Asia can adopt.
Currently, Asia uses three times more resources to produce one unit of GDP than the rest of the world. With the volatility of commodity prices and economic shocks becoming the “new normal”, Asia lends itself to new risks of vulnerability with rising resource cost. For example, more than 42 million people in Asia were pushed back into poverty in 2011 alone due to the triple shocks of food-fuel and financial crises.
Urgent action by business and governments to improve both the region resource and energy efficiency will not only reduce emissions but will also drive sustainable economic growth, addressing the challenges of rising resource prices, the need to generate decent productive jobs, and build resilience to natural and man-made disasters. In fact, Asian governments and business have already started to innovate and invest in a “low carbon green growth agenda” to promote environmentally, sustainable approaches, turning resource constraints and the climate challenge into new opportunities for economic growth.
At this year’s Climate Summit, several Asian governments announced ambitious commitments and workable climate change solutions. For example, China aims to reduce its carbon emission per unit of GDP by 45 per cent using its 2005 figures. Indonesia and Malaysia are reforming their fossil-fuel subsidies to encourage a shift to cleaner energy. Mongolia plans to reach 20 to 25 per cent of total energy production from renewables by 2020. Singapore is fast becoming a model for sustainable city and water management. Kazakhstan has initiated its “green bridge” programme and hosting EXPO-2017 on Sustainable Energy as a platform for countries and businesses to share innovations and transfer green technology.
Companies are also advancing corporate sustainability through a number of global initiatives. A few examples may illustrate this trend:
a. As data centers eat up an increasing share of energy output, Microsoft Corporation says it will achieve carbon neutrality through offsetting actions.
b. Unilever is launching a drive to halve the greenhouse gas impact of their products.
c. Nike, Inc.’s target is zero discharge of hazardous chemicals along its entire supply chain, both by 2020.
d. H&M will upgrade to 100 per cent sustainable cotton – either organic, recycled, or certified – in its cotton garments.
Despite these good examples, corporate sustainability has not penetrated the majority of companies around the world, in particular the small and medium-sized enterprises (SMEs) which make up the vast majority of all companies, nor have we seen the depth of action needed to address the most pressing challenges, the human rights challenges of corporate governance especially in supply chains. Even when our governments, businesses and CSOs have signed off on the UN principles on businesses and human rights, implementation in this area remains a challenge.
There is still much that private sector and governments can do together to scale up action to address the climate challenge, to generate decent productive jobs, and harness opportunities to drive the Asian journey towards sustainable and shared prosperity.
I would like to share six suggestions for a further action agenda for CSR in Asia.
a. First, business needs to shift Corporate Social Responsibility (CSR) attention from how to spend money (i.e. charitable giving) to how their money is made (i.e. in a sustainable and socially responsible manner).
b. Second, business needs to use innovation to open up new growth markets and develop new drivers of growth – addressing the needs of poor consumers; developing consumer demand for value-based sustainable products and services; and helping marginalized communities use technology to leap-frog inefficient and less sustainable products and services.
c. Third, business should ensure the highest labour standards, industrial safety; and environmental protection. We cannot allow a ‘race-to-the-bottom’ on labour standards and the resulting loss of lives, or for toxic pollution to simply be shifted from one production chain to another.
d. Fourth, wise stewardship and concern for the common good must become core values of business, this entails, inter alia, staying cost-competitive by conserving land, water, energy, and minerals, as well as by eliminating waste and encouraging reuse and recycling.
e. Fifth, move from short-term speculation to long-term value creation by attracting the right mix and the highest caliber managers and ethical leaders, who can build effective management teams, inspire employees, and strengthen corporate governance, and accountability of business. There must be zero tolerance for both public and corporate corruption and criminality.
f. Sixth, besides independent monitoring, reward compliance and take action against offenders so that we are not just good at ticking boxes, writing rules, regulations and policy frameworks but genuinely contribute to the growth of smart business on the ground.
Smart business is simply good business that invest in people and our planet. It can become a leading agent of change and future prosperity – partners in development to reduce poverty, ensure environmental sustainability and provide decent living and working conditions for all our people.
Our shared challenge, and the opportunity for increasing both value and values-based partnerships in the years ahead, is to not only accelerate growth, but also to change the nature and quality of growth, making it more inclusive, more sustainable, and ultimately more supportive of people and our planet.
As creative thoughts unfold in Asia, it is my hope that Singapore can be the CSR hub in Asia driving Asia’s new prosperity, taking care of our people, value the gifts of our planet. Let us together create a “Rising Asia” that we can truly be proud of – for ourselves and for our children.
I thank you.