STING CORPORATE ACCOUNTABILITY INDEX METHODOLOGY S TING Consultants reached out to the largest listed companies, private entities and State Owned Enter- prises (SOEs) operating in Sri Lan- ka, with an invitation to participate in this exercise by voluntarily sub- mitting information and supporting evidence of their corporate accountability practices and performance. The top 50 companies in the LMD 100 and 10 key SOEs were rated, regardless of whether they submitted information, given that they are the largest entities in the coun- try and therefore have the greatest potential impact. Seventeen listed entities responded to STING Consultants’ questionnaire, along with one SOE and three privately owned companies, bringing the total number of vol- untary responses to 21 this year. The remain- ing companies and SOEs were rated on the basis of publicly available information – i.e. annual reports, sustainability reports and corporate websites. Companies continue to be categorised into broad bands based on the scores achieved (Platinum 75-100, Gold 60-74.9, Silver 50- 59.9, Bronze 40-49.9). This indicates their levels of advancement in terms of adopting responsible business practice, while allow- ing for benchmarking. The minimum score for classification remains 40, so entities scoring below this level aren’t classified. Entities are assessed against the STING Corporate Accountability Model – a propri- etary model that has been developed to reflect a holistic and integrated approach to corporate responsibility, sustainability and governance. This model is based on a set of qualitative aspects which are assessed and measured, and then converted into a quanti- tative score. The model has been updated this year, together with shifting from an annual to a biennial rating, with more emphasis given to the extent to which these aspects are opera- tionalised within the entities; in particular, by identifying to what extent employees are trained and made aware of the companies’ values, codes of conduct and other policies. As in previous years, an entity’s product portfolio is taken into account in the assess- ment. As a result, companies that produce and sell products which may have negative health implications (for example, alcohol and tobacco) face a penalty which is taken 113 – FEBRUARY 2014 – LMD Corporate values Stakeholder engagement Identifying impacts, risks and opportunities Measurement and disclosure 4% 20% 18% 20% 18% 20% Management and governance Policy coverage STING Consultants explains the basis on which it assesses the level of corporate accountability in Sri Lanka biennially KEY ATTRIBUTES OF CORPORATE ACCOUNTABILITY TO COMMENT ON THIS ARTICLE VISIT OUR WEBSITE AT LMD.lk
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ST ING CORPORATE ACCOUNTAB I L I TY I NDEX
METHODOLOGY
STING Consultants reached out tothe largest listed companies, privateentities and State Owned Enter -prises (SOEs) operating in Sri Lan -ka, with an invitation to participatein this exercise by voluntarily sub-
mitting information and supporting evidenceof their corporate accountability practicesand performance.
The top 50 companies in the LMD 100 and10 key SOEs were rated, regardless ofwhether they submitted information, giventhat they are the largest entities in the coun-try and therefore have the greatest potentialimpact.
Seventeen listed entities responded toSTING Consultants’ questionnaire, alongwith one SOE and three privately ownedcompanies, bringing the total number of vol-
untary responses to 21 this year. The remain-ing companies and SOEs were rated on thebasis of publicly available information – i.e.annual reports, sustainability reports andcorporate websites.
Companies continue to be categorised intobroad bands based on the scores achieved(Platinum 75-100, Gold 60-74.9, Silver 50-59.9, Bronze 40-49.9). This indicates theirlevels of advancement in terms of adoptingresponsible business practice, while allow-ing for benchmarking. The minimum scorefor classification remains 40, so entitiesscoring below this level aren’t classified.
Entities are assessed against the STINGCorporate Accountability Model – a propri-etary model that has been developed toreflect a holistic and integrated approach tocorporate responsibility, sustainability and
governance. This model is based on a set ofqualitative aspects which are assessed andmeasured, and then converted into a quanti-tative score.
The model has been updated this year,together with shifting from an annual to abiennial rating, with more emphasis given tothe extent to which these aspects are opera-tionalised within the entities; in particular,by identifying to what extent employees aretrained and made aware of the companies’values, codes of conduct and other policies.
As in previous years, an entity’s productportfolio is taken into account in the assess-ment.
As a result, companies that produce andsell products which may have negativehealth implications (for example, alcoholand tobacco) face a penalty which is taken
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Corporate values
Stakeholder engagement
Identifying impacts, risks and opportunities
Measurement and disclosure
4%
20%
18%20%
18%
20%
Management and governance
Policy coverage
STING Consultants explains the basis on which it assesses the level of corporate accountability in Sri Lanka biennially
KEY ATTRIBUTES OF CORPORATE ACCOUNTABILITY
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ST ING CORPORATE ACCOUNTAB I L I TY I NDEX
METHODOLOGY
off their total scores. The results presented inthe index reflect these companies’ perfor-mance after accounting for this penalty.
Companies are assessed across six keyareas which constitute the necessary compo-nents for holistic and integrated corporateaccountability. Each area consists of a rangeof criteria that is required for operatingthrough an integrated framework of responsi-bility. The six key areas are weighted accord-ing to their relative importance in facilitatingcorporate accountability (see accompanyingchart), and they are summarised as follows.Corporate values determine whether anentity has made an effort to establish a set ofhigh-level values or principles that define therole it wants to play in society, by incorpo-rating aspects of accountability and respon-sibility in its corporate statements (vision,mission, values and so on).
Stakeholder engagement assesses whe -ther an entity is aware of who its key stake-holders are, the extent to which it engageswith them as well as whether it provides rea-sonable responses to the key issues, concernsor grievances raised by stakeholders.Identifying impacts, risks and oppor-tunities measures the extent to which anentity is aware of the main impacts on eco-nomic, social and environmental sustainabil-ity resulting from its operations, and whetherit can identify and respond to credible risksand opportunities arising from such impacts.Policy coverage assesses the extent towhich an entity has policies in place withregard to managing environmental aspects,labour practices, human rights, societal con-cerns – and the extent to which employeesare made aware of these policies throughtraining.
Management and governance considerwhether globally recognised managementsystems are in place with respect to the envi-ronment, health and safety, quality andworkplace practices.
In addition, this section assesses the natureof corporate governance, and the extent towhich accountability and responsibility areintegrated into the core governance process-es of an entity.Measurement and disclosure assessesthe extent to which an entity measures itsperformance against key sustainability-relat-ed indicators. This section also assesseswhether it publishes a sustainability reportthat addresses its environmental, social andeconomic performance and impacts, in addi-tion to the quality, comparability and credi-bility of information contained in suchreports.
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Established in 2002, STINGConsultants is Sri Lanka’sonly exclusive strategicmarketing and brandconsulting company. Thefirm has worked on over 130 projects during its 13years in business. Its servicesinclude all aspects ofstrategic marketing,branding and brandvaluation (through itsaffiliation with BrandFinance), and they aretailored to fit the specificneeds of clients.
In 2008, STING Consultantsset up a strategic CorporateResponsibility (CR) divisionto assist in setting up overallsystems of corporateaccountability, responsibilityand sustainability in clientcompanies. A plannedapproach to this discipline is key to building corporatereputation, and isintrinsically linked tobusiness sustainability.
STING Consultants’strategic corporateresponsibility servicesinclude the following.❏ Company performance
assessments based on the available data usedto publish the STINGCorporate AccountabilityIndex. This includesbenchmarking againstpeers, and providingrecommendations forimproving accountabilityand sustainabilitypractices.
❏ In-depth audits ofcompanies, to analysethe extent to whichstrategic CR is integratedinto their operations.This is done through anassessment against thecorporate accountabilitymodel and assessmentsto understand theeffectiveness of strategicCR implemented withinthe organisation.
❏ Setting up structuredstakeholder engagementsystems withincompanies, includingprioritising stakeholders,analysing issues,developing engagementtools, reaching out tostakeholders, analysingfindings and providingrecommendations tocompanies on how theyshould manage theirstakeholder relationships.
❏ Providing assistance tocompanies onsustainability reportingvis-à-vis the GlobalReporting Initiative (GRI) Guidelines, byimplementing asystematic approach to identifying materialissues and monitoringperformance accordingly.This will also ensure thatpublished reports meetthe requirements of theGRI Guidelines.
❏ Awareness and educationfor client companies’management teams onstrategic corporateresponsibility andsustainability, so thatthey fully understand thebackground of this areaof business, itsimportance and the wayforward.
STING Consultants is alsothe accredited third partyauditor for Green GlobeCertification in Sri Lankaand the Maldives. It isresponsible for verifying thesustainability performanceof tourism businessesthrough onsite audits, inorder for certification to be awarded.
Awareness of standards for thesocial and environmental fabricof the world we live in is increas-ing exponentially on a globalscale. This includes awarenessand opinions on environmental
protection, climate change, human rights,workplace and consumer rights, health andsafety, and ethics and governance, amongstothers. Businesses are now made or brokenon the basis of the standards they maintain inregard to such topics.
Profitability is no longer the key factordriving business success. Instead, social andenvironmental standards determine a compa-ny’s ability to garner profits.
In the light of this, it is important to ascer-tain the status of Sri Lanka Inc. and its pre-paredness for facing challenges of doingbusiness in the future, in a world which isincreasingly more networked and has seen ashift of power from governments and corpo-rates, to the people that make up society. It isthis that the STING Corporate Accoun tabili-ty Index has aimed to measure over a periodof five years, while gradually evolving in linewith changing conditions of the outsideworld.
The STING Corporate AccountabilityModel and the published index are powerfultools that companies can use to understandthe extent to which they have integrated thekey aspects of undertaking business in anaccountable, responsible and sustainablemanner. This year, the results suggest thatwhile progress is being made by businessentities, the pace is very slow – much slow-er than the rate at which the world is chang-ing; and at which stakeholders are changingtheir opinions and needs, and the standardsthey expect corporates to uphold.STATE OF ACCOUNTABILITY The 2014STING Corporate Accountability Index fea-tures 67 companies, including listed, privateand state-owned entities. Forty companiesachieved scores above the minimum cut offpoint for classification (40%), which impliesthat at least 27 companies of those who arefeatured have yet to fully realise the signifi-cance of sustainable business operations forlong-term success.
Progress in implementing strategic respon-
sibilities amongst many of the featured organ-isations has remained very slow since the ini-tial Corporate Accountability Index was pub-lished in 2010. But time is running out, andno longer can companies mull over whetheror not to take this perspective of doing busi-ness seriously – the core of which revolvesaround business impacts on key stakeholdersand their changing requirements.
In the past year or so, there have been manyexamples globally – and more alarmingly, inSri Lanka – of corporations that have in oneway or another failed to consider critical
aspects that are of importance to their stake-holders. This, in turn, has significantly affect-ed their reputations, bottom lines and abilityto continue operations in the long term.
It is a fact that the majority of Sri Lankanbusinesses still have a long way to go.There’s a lot of work to be done before theycan truly declare themselves to be responsi-ble, sustainable and good corporate citizens.The average score of 47.18 achieved bycompanies in the Corporate AccountabilityIndex represents a drop from 49.4 in 2012 –and this is a worrying sign, given that busi-
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There is also a clear sign of moreconsumers being interested in andconcerned about responsibly producedgoods and services (as can be seen from the popularity of the weekly Good Market), at least amongst theurban and more affluent consumers…
Tiara Anthonisz assesses the state of accountability in Sri Lanka and emphasises the need for a new approach to replace the old
nesses are now at a critical juncture, in termsof establishing their sustainability. With thenatural progression of this topic, the Cor -porate Accountability Model is also con-stantly evolving and developing, seeking toassess more aspects of how businesses oper-ate. This year’s results, therefore, reflectcompanies’ performance taking this evolu-tion into consideration.
In particular, the model has been expandedto assess the extent to which companies aretraining their employees on sustainability,corporate values, codes of conduct and vari-
ous policies. This area was deemed impor-tant to consider in the evaluation, as compa-nies cannot hope to be sustainable if the peo-ple (their key asset) who make their wheelsturn aren’t brought on board and keptinformed on how they should be operating,so that corporate objectives for sustainableperformance are met.
Of the 67 entities featured this year, train-ing in key areas were mentioned by the fol-lowing number of companies: corporate val-ues – 17; environmental policies – 22; work-place standards and practices – 21; human
rights policies – 20; and social aspects,bribery and corruption and codes of ethics inparticular – 26.
The apparently higher occurrence of train-ing and awareness on fraud, bribery, andunlawful gifts and entertainment, as opposedto other critical aspects and policies, couldperhaps be due to the fact that this is an areathat has been somewhat established for alonger period of time – one that has clearerfinancial implications and is incorporatedinto codes of best practice on corporate gov-ernance, thereby compelling publicly listedcompanies to address it.
However, companies must realise that otheraspects – in particular, environmental andhuman rights – are equally or possibly muchmore important for maintaining their stake-holder relationships, corporate reputationsand profitability. So employees should beadequately trained on how to address thesefactors.ROLE OF STAKEHOLDERS The relativeneg lect of most sustainability aspects by alarge number of companies could be attribut-ed to the fact that stakeholders haven’t beenas concerned about holding companiesaccoun table for their non-financial perfor-mance record in the past, with the exceptionof international buyers, partners and inves -tors.
However, a noticeable and significant trendsince publishing the previous index is thatthis has clearly changed in Sri Lanka, withmore stakeholders of corporations rallyingtogether to demand higher social, environ-mental and economic standards from theentities that they are associated with. Forinstance, there is now more frequent com-munity outrage over certain corporate activ-ities, most notably pollution and negativehealth impacts.
There is also a clear sign of more con-sumers being interested in and concernedabout responsibly produced goods and ser-vices (as can be seen from the popularity ofthe weekly Good Market), at least amongstthe urban and more affluent consumers.
Going forward, other key stakeholders willalso increasingly become more concernedwith corporate activities and their non-finan-cial performance as it becomes clearer how
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this aspect of business can impactstakeholders’ interests.
A shift in investor mindsets willcertainly be critical. And this isalready happening, as more com-panies produce integrated reports(10 featured companies) whichaim to combine and show the linkbetween financial and non-finan-cial performance, thereby makinginvestors more aware of how sus-tainable business operations (or alack thereof) will affect their in -vest ment portfolios in the long run.
Stakeholders require informationon company activities and perfor-mance in order to hold themaccountable for their actions. The2014 Corporate AccountabilityIndex finds that there is indeed arise in corporate communicationson sustainability, with 60 of the 67firms ranked mentioning non-financial aspects in their annualreports to some extent, and 48 cor-porates including such informationon their websites.
The quality of information pro-vided is essential for stakeholders to be ableto make informed decisions. Of the 60 com-panies that have done so, only 30 have struc-tured sustainability reports that follow glob-ally established guidelines. Of these, only15 are externally assured to confirm thecredibility and accuracy of reported infor-mation.
Despite there being an improvement incommunications since 2012, this is still aninsufficient number. This confirms that alarge number of businesses still fail to realisethe importance of embedding responsiblebusiness practices into their operations andbeing transparent by keeping stakeholdersinformed of their progress.
In fact, of the 48 companies which presentinformation on their websites, 14 talk onlyabout philanthropic community activitieswhich cannot be considered a strategic cor-porate responsibility – but rather, they are acomponent of public relations. MANAGING SUSTAINABILITY Despite theresults being weaker than desired, it is en -
couraging to note that companies are, in fact,taking steps to improve. And more corporatesare beginning to consider how their actionsmight impact the social, environmental andeconomic spheres in which they operate.
Albeit slowly, companies are also begin-ning to establish systems to manage suchimpacts. This is reflected in the rise of thenumber of CSR and sustainability commit-tees in the companies featured in the 2014index. Of the entities listed, 27 now havecommittees that are responsible for socialand/or environmental aspects, compared to13 featured in the 2012 index.
Though some of these committees havebeen set up simply to govern communityinvolvement – an area that a large number ofcompanies still confuse with true corporateresponsibility, rather than the wider gamut ofsustainability topics – it is an encouragingdevelopment nevertheless. One hopes thatthese committees will begin to steer theircompanies in the right direction, going for-ward.
It is imperative, therefore, forcompanies to set up appropriatecommittees – not CSR committeeswhose purpose is to determine andapprove charitable donations.
These groups should, instead, becross-functional sustainability com - mittees with multidisciplinary ex -perience and expertise, so thatthey can analyse how companiesim pact their stakeholders, posi-tively or negatively, through theiroperations.
These committees must be ableto put plans in place to minimisethe negative impacts resulting frombusiness operations, while aimingto maximise the positive benefitsthat are generated. They must settargets and objectives for continu-ously improving sustainability per-formance. And they should moni-tor progress against these targetsregularly, to ensure that all compa-ny activities are undertaken withsustainability at their core.CONCLUSIONS While progresshas been made by companies,
albeit at a slow pace, it is clear that muchneeds to be done by corporate Sri Lanka totruly establish a consistent and focussedeffort towards ensuring sustainable businessoperations for the benefit of society and theenvironment, as well as for business.
We encourage corporates to review thefindings of the Corporate AccountabilityIndex and to learn from the experiences ofthose that have already established them-selves at a high level, to develop sound sys-tems of accountability, responsible gover-nance and sustainable performance.
Companies who achieved Platinum statusin the 2014 STING Corporate Accounta -bility Index are showcased in this feature, inthe hope that they will serve as an inspirationto others to instil similarly high standards forthe betterment of the Sri Lankan economy,and its social and environmental ecosystem.
47.18%2014
AVERAGE SCORE
STRUCTURED SUSTAINABILITY REPORTS
CSR/SUSTAINABILITY COMMITTEES
2012
2014 2012
2014 2012
44.78%
40.29%
49.40%
38.09%
20.63%
THE INDEX
To obtain feedback on your corporateaccountability performance, email STINGConsultants ([email protected])
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Dialog Axiata recognisesthat the foundations ofsustainable business rests onmeeting the ever changingneeds of diverse groups ofstakeholders. The companyhas thus established astructured system forstakeholder engagement, to constantly be aware of their views and concerns,and provide them withinformation on its activities.
Stakeholder engagementoccurs on a regular basiswith a range of groups. Inaddition, key stakeholdersare engaged on a two-yearbasis, whereby detailedinformation is sought ontheir views on Dialog’ssocial, environmental andeconomic performance. Theresulting outcomes form thebasis of Dialog’s evolvingpolicies and strategies with
regard to sustainabilitymanagement.
Dialog is committed toensuring and managingsustainability across its valuechain, with an emphasis ondeveloping and buildingcapacity at the bottom ofthe pyramid. The companyalso ensures thatcommunity-related activitiesit undertakes are strategic,fully integrated and
interlinked with its corebusiness.
In particular, Dialog usesits expertise in informationand communicationstechnology to work towardsbridging socio-economicdisparities in access toknowledge, information,education, health and other areas by digitallyempowering communities in an inclusive manner.
DIALOG AXIATA
John Keells Holdings has set up a robust structure tomanage its sustainabilityagenda, which is integratedwith its overall corporategovernance systems. A Group SustainabilitySteering Committee hasbeen established, withoverarching responsibilityfor the group’sperformance. In addition,Task Groups are in place foreach aspect of sustainability:economic, environment,
labour and human rights,occupational health andsafety, and productresponsibility.
Each of the group’s manybusiness units also has adedicated sustainabilitychampion. He or she isresponsible for itssustainability performance.The sustainability strategyfor the group is formulatedon the basis of keystakeholder concerns andmaterial issues.
Group companies areassociated with variousinternationally establishedinitiatives for sustainability(including the UN GlobalCompact, Green GlobeCertification and LEED),while they lay claim tohaving certifiedmanagement systems forenvironmental aspects –health and safety, foodsafety and qualitymanagement.
The group has systems
in place for opencommunication, handlinggrievances and whistle-blowing, including adedicated email channelthough which employeescan communicate directlywith the Chairman of theboard.
JOHN KEELLS HOLDINGS
Key features that set Aitken Spence apart are its approach to riskmanagement and theextent of its policies. Thecompany has implementeda holistic and systematic riskmanagement process whichinvolves identifying andanalysing business impacts
on social, environmentaland economic dimensions.This includes bothhypothetical and actualimpacts.
The company’s riskmanagement approachtakes into account allaspects of sustainability, and every activity that is
undertaken as part of itsbusiness operations isanalysed through thisframework.
Aitken Spence has alsodeveloped a group-wideIntegrated SustainabilityPolicy, which is available onthe company’s website,thereby ensuring
transparency. This policy issupported by clauses andsub-clauses which arecommunicated internally,and awareness is createdamongst employeesthrough training.
AITKEN SPENCE
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Being a key player in thelocal construction industry,Maga Engineering workstowards ensuring thatinfrastructure developmentoccurs in a sustainablemanner.
This is done by engagingwith stakeholders in thecommunities in which itoperates (this is no easytask, when the location ofoperations changes
frequently and newrelationships must be built).
And this is done byanalysing the impacts of operations on localcommunities and otherstakeholders, andidentifying and mitigatingthe resulting risks bycontinuously monitoring itssustainability performance,and identifying andimplementing new ways
to improve. The company also ensures
that its employees are on board and geared towardsmeeting its sustainability-related objectives, byconducting trainingworkshops on sustainabledevelopment formanagement and project staff.
Maga Engineering also encourages the
development of sustainableor green buildings whichcontribute towardssustainability for theiroccupants when theinfrastructure within which they live or work has been created withsustainability in mind.
MAGA ENGINEERING
As a company operating inthe motor industry, Diesel &Motor Engineering (DIMO)recognises the ways inwhich it impacts society andthe environment. Thecompany is, therefore,systematically monitoringand measuring itsperformance on a range ofsocial and environmentalaspects. This includesmonitoring and taking steps to reduce its carbonfootprint.
DIMO is transparent aboutthese impacts, and has beenmaking information on itssocial and environmentalperformance available tostakeholders for a numberof years. More importantly,the company is aware ofhow its non-financialperformance isinterconnected with itsfinancial performance.
Accordingly, it is in itsthird year of IntegratedReporting, where this
interconnection is madeclear so that stakeholders(particularly investors) canmake more informeddecisions. DIMO’s firstIntegrated Report in2010/11 was also a first forAsia, and the company iscurrently part of a pilotprogramme of theInternational IntegratedReporting Council, which is working to establish aglobal framework forintegrated reporting.
DIESEL & MOTOR ENGINEERING
The real value of theCorporate AccountabilityIndex is in the wealth ofdata that STING Consultantshas gathered on howcompanies have performedin the context of corporateaccountability over asustained period of time.
This data, which serves as a valuable measurementtool, is available tocompanies that can use it to learn how they havebeen performing over time – whether they have improved in theirsustainability management,where they are strong or
weak and how they stackup against their peers.
The detailed feedback that STING Consultants can provide also includesrecommenda tions on howcompanies can integratemore advanced systems ofcorporate accountabilityinto their operations.
Companies that are notfeatured in the 2014Corporate AccountabilityIndex can commissionprivate assessments andfeedback on theirperformance, which willallow them to benchmarkthemselves againstcompanies that are listed.
LEARNING FROM THE STUDY
There have been many local andglobal examples in the recent pastof situations where things haveunexpectedly gone horribly wrongin the corporate world, which haveseverely damaged company repu-
tations and threatened the viability and sus-tainability of businesses. These situationshave arisen due to a lack of corporateresponsibility and unsustainable businesspractices.
When implemented effectively, the agendaof sustainability from a business manage-ment perspective minimises the risks facedby organisations by constantly seeking tounderstand stakeholder expectations.
Sustainable business management involvesanticipating potential issues that could arisein the future, and prepares organisations todeal with these before they emerge.
In a nutshell, sustainable business manage-ment is a process of holistic risk manage-ment. Contrary to common misconceptionsof the subject here, in Sri Lanka, it is notabout short-term green initiatives or philan-thropic projects. Some issues faced at homeinclude the Rathupaswala water pollutionincident which caused a ripple effect ofsocial unrest and loss of life; the milk pow-der health scare; and more recently, thePiliyandala gas leak which resulted in thehospitalisation of over 70 residents of thearea.
In some cases, these incidents involved abreakdown in the management of a particu-lar aspect of sustainability; and in others, theentities could have been operating in adher-ence with all requirements and standards, butwere yet faced with shutdowns.
Whatever the reasons, these breakdownshave affected the reputations of organisa-tions, including parent companies and inter-national partners or buyers. They haveresulted in financial and operational conse-quences in the form of plant closures and theremoval of operating licenses. And they haveundermined the ability of these businesses tooperate smoothly in the long run.
So the actual as well as perceived risksassociated with everyday operational aspectsof running a business are a significant factorthat affects long-term business sustainability.
Therefore, understanding the mindset of crit-ical stakeholders is a prerequisite to beingable to anticipate events such as these,before they happen.
STING Consultants advocates pre-emptivemeasures to be taken to mitigate some ofthese risks. Our approach is underpinned bythe expectations and changing needs ofstakeholders (who are the drivers of the sus-tainability agenda). Businesses cannot con-
tinue to operate in the long term without thefull support and consent of their key stake-holders, whether they be employees, cus-tomers, investors, the supply chain or com-munities in their areas of operation.
Our approach seeks to embed a sustainableprocess of business management through thefollowing core ingredients: strong corporatevalues; regular, open and two-way communi-cations with stakeholders, which in part
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SUSTAINABILITY AGENDA
Global consumers now expect companies tomonitor their supply chains and ensure thatstandards are maintained. They want to knowthat the goods they purchase have beenproduced – from start to finish – withoutcausing harm to people or the planet…
Ruchi Gunewardene and Tiara Anthonisz offer insights into the often overlooked and wider role of sustainability
enables holistic risk management that takesinto account impacts on all dimensions ofsustainability (economic, environmental andsocial); strong policy guidance for employ-ees, to mitigate negative impacts and theirconsequent risks and work in line with com-pany objectives; commitment, support anddirection from the very top of the organisa-tion, through good corporate governancepractices and management systems; and con-
tinuous monitoring of performance, as well asbalanced and transparent communications onperformance and the achievement of targetsto stakeholders through credible reporting.RISK MANAGEMENT The review and anal-ysis of results of the 2014 STING CorporateAccountability Index sheds some light onthe level at which companies have embeddedthis approach in their operations.
Of the 67 companies featured in the index,
31 portray some awareness of how they areimpacting their stakeholders and seem awareof their stakeholders’ changing needs, andhave identified steps that are being taken toaddress them. This directly impacts theirability to manage risks, which is critical inthe context of recent events – all fundamen-tally due to a breakdown in stakeholder rela-tionships in one form or another.
Only 20 companies appear to have imple-mented a system to analyse the three centralaspects of sustainability (economic, environ-mental and social) in their overall risk man-agement procedures, or consider risks underall three dimensions. This is a glaring short-fall, as it leaves at least 47 companies poten-tially open to significant risks which couldaffect their ability to operate unhindered inthe long run.
It is important for companies to realise thatrisks do not only arise from their internaloperations, but could also stem from supplychains – as has been the case for variousinternational apparel retailers in the past.Companies face potential risks and reputa-tional losses when they are found to be doingbusiness with suppliers who act irresponsi-bly, or fail to respect and uphold certainsocial and environmental standards.
Global consumers now expect companiesto monitor their supply chains and ensurethat standards are maintained. They want toknow that the goods they purchase have beenproduced – from start to finish – withoutcausing harm to people or the planet. Theproliferation of certification and labellingschemes bears testimony to this, as con-sumers are now demanding proof or somelevel of assurance that what they purchasehas been produced responsibly.
Of the 67 firms featured in the STINGCorporate Accountability Index this year,only 12 appear to have some form of screen-ing of their supply chains for human rights orwider sustainability issues. This area needsto be addressed, as a lack of monitoringcould leave companies open to a multitudeof risks.
Additionally, screening of supply chainswould have the added benefit of spreadingthe sustainability agenda further as morecompanies, including smaller scale suppli-
ers, meet the required standards. Indeed, cor-porations will have no choice but to bridgethis gap in the future.
The global sustainability reporting agendamanifested through the Global ReportingInitiative’s (GRI) latest reporting guidelinesnow takes into account supply chain issues,and requires companies to monitor their sup-ply chain sustainability performance andreport on it.
An analysis of the 2014 index results alsobrings to light the number of companies thathave implemented whistle-blowing policiesor formal grievance-handling procedures,which stands at 43 of 67 – an increase from35 companies in 2012. Such procedures areimportant, as employees must have a chan-nel through which they can inform theirmanagement of any wrongdoings that couldresult in risks for organisation – anonymous-ly if required.
Employees on the ground would most like-ly be the first to be aware of any such inci-dents, so it is essential that they have a chan-nel through which to raise concerns with theconfidence that they will not be penalised fordoing so.
Sri Lankan businesses have implementedthis to varying degrees of sophistication rang-ing from externally monitored phone linesand dedicated email addresses, to simplyinforming superiors of any incidents that mayarise. Corporates must ensure that whateverprocesses they have in place are effective andthat employees are confident about usingthem.THE WAY FORWARD The results of the2014 STING Corporate Accountability Ra -ting indicates the extent to which corporateSri Lanka is holistically managing its risks.But given the circumstances, this isn’t goodenough.
Structured and meaningful stakeholderengagement is essential if companies are tobe aware of how they impact their stakehold-ers, what risks they face and how theyshould mitigate these.
Businesses must accept the fact that stake-holders now have a great deal of influence indeciding whether or not they will continuetheir operations uninterrupted. Engagementwith stakeholders must, therefore, become a
core component of their risk managementprocedures.
Companies must also appoint committeeswho are responsible for risk managementfrom a sustainability point of view. Theirrole should be to constantly analyse businessimpacts on the economy, society and theenvironment, as well as find ways to reduceany negatives. Through this process, actualand potential sustainability risks associatedwith everyday operational aspects of runninga business should also be on the agenda ofcompany boards. This is a vital componentof business continuity and profitability in thelong run.
The bottom line is that it is not in the bestinterests of businesses to be caught off guard,and then struggle to repair the damage.
Proactive sustainability and risk manage-ment, rather than having to resort to reactivemeasures, are required to ensure businesscontinuity.
Failing to recognise potential risks of busi-ness operations and reacting after an issuehas been brought to light will, more oftenthan not, result in a crisis which could veryeasily spin out of control. We have witnessedthis in Sri Lanka in the recent past.
Companies need to establish sufficientlyrobust systems for holistic risk management,which can anticipate potential issues andfind solutions before they emerge.
So companies must establish these systemsimmediately, and they must permeate allfacets of their operations. Sustainable busi-ness management cannot be confined to onedepartment or division, but must be consid-ered across every function of an organisationif the risks are to be identified and mitigatedin time.
A change of mindset is thus required. Thenotion that CSR is undertaken to alleviate afew social problems or gain media mileagethrough one-off projects is a misinformedone. Corporates must understand that thereare wider issues at play – and that theseissues could affect them in the long run.
They must recognise that being a responsi-ble and sustainable corporate is an essentialrequirement for managing risks, safeguard-ing reputations and protecting the ability toearn profits in the future.
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An analysis of the 2014 indexresults also brings to light thenumber of companies that haveimplemented whistle-blowingpolicies or formal grievance-handling procedures…
Today, organisations are experienc-ing increased pressure from theirsurrounding environments to act asgood corporate citizens whilstmeeting the expectations of share-holders’ return on investment. But
apart from financial returns, being a socially,environmentally and ethically responsibleoperator is now mandatory for businesslegitimacy.
By aligning branding with corporate res -pon sibility, organisations can establish astrongly differentiated strategy – and this cancreate significant value through an integrat-ed approach, in what has traditionally beenviewed as two separate business disciplines.STRATEGIC CSR Over the past severaldecades, the corporate world has experi-enced an increased focus on the ethicalbehaviour and responsibilities of businesses.This is evident in the shift in focus fromshareholder value (i.e. maximising profit) tostakeholder value, where companies arestriving to balance their interactions withpeople, planet and profit.
This new tendency is a consequence of thefact that progressively more power has beenvested in stakeholders who demand trans-parency in organisational communicationsand expect companies to be accountable fortheir impacts as they tap into human, naturaland material resources to run their business-es.
In turn, these societal expectations havepressured corporates to act responsibly withregard to their external as well as internalenvironments.
Thus, CSR cannot be bolted onto organisa-tions through ad hoc philanthropic projectsor environmental initiatives. A better optionis to adopt a holistic approach, which whenintegrated into the daily functions of thebusiness, enhances its ability to create eco-nomic, environmental and social value.
To do so, companies must look at CSR – aterm which encompasses both sustainabilityand good governance – in a fully integratedmanner. By taking ownership of their im -pacts, they can minimise the negatives thatoccur as a result of their daily operations to agreat extent, whilst maximising the positivefactors they create.
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STING Consultants has worked on branding and CSR with many clientsand strongly believes these key elements can combine to create value
IBM’s Smarter Planetwas launched five yearsago, initially as anadvertising ideaintended tocommunicate thecompany’s intent toshare knowledge, start a dialogue withcustomers and inspireits 400,000-plusworkforce to see valuein their research andthinking. Thissubsequently evolvedinto an agenda which is rooted in making theworld a better place.
The Let’s Build aSmarter Planet agendawas a call to such action– a commitment tosharing knowledge thatwould help customers.More importantly, itwas rooted in thecompany’s vision andongoing business
practices. SmarterPlanet was, therefore,fully integrated into the business.
IBM’s initiative seeksto highlight howforward-thinkingleaders in business,government and civilsociety around theworld can capture thepotential of smartersystems to achieveeconomic growth,greater efficiency,sustainabledevelopment andsocietal progress.
This is achieved bymandating anddeploying employees to address pressingcommunity issues whereIBM’s core businessexpertise can beapplied. It involvesanalysing data toprovide solutions to
complex situations thatare everyday problemsin major cities.
Examples includesmarter electricity gridsthat minimise wasteand leakage, moreefficient watermanagement systems,solutions to trafficcongestion, greenerbuildings and manyothers. Historically,these systems have beendifficult to managebecause of their sizeand complexity. Butwith new ways ofmonitoring, connectingand analysing data,business, civic and non-governmental leadersare developing systemsto manage these issues.This benefits both IBMand the community.
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And they must do so in a transparent man-ner, offering stakeholders all the facts (posi-tive and negative), so that all parties areaware of what is being done – and moreimportantly, what more needs to be done toensure a sustainable future for all.
There are multifaceted implications withina networked society which businesses mustnow navigate and contend with. Whilst thereare potential risks for all companies, thosewho fail to take pre-emptive action run a sig-nificantly higher risk of something goingunexpectedly wrong, even after decades ofdoing business successfully.
The past is no longer an indication of con-tinued success in the future. This is whystrategic CSR, responsible business andgreater accountability play a critical role inensuring business sustainability.STRATEGIC BRANDING A brand is simplythe way consumers define or perceive a prod-uct or service, which is uniquely differentiat-ed vis-à-vis the competition. It is about whatthe brand stands for. And it isn’t a brand, ifthe sole objective is to sell the product or ser-vice at the lowest price. If that is the sole pur-pose, then it is a commodity.
If there is no meaning or purpose behindthe product or service, and if the brandowner is unable to define or articulate whatit stands for, then in essence, there is nobrand. In such situations, there is a name butnot a brand.
So brands essentially reside in the minds ofcustomers. If there’s a distinct offering orposition in the mind, it can create consider-able value to the business. Branding is allabout finding ways of creating this value.
In an environment in which the functionaldifferences between products and serviceshave been narrowed to the point of nearinvisibility by the adoption of total qualitymanagement, brands provide the basis forestablishing meaningful relationships. Thisrequires detailed market information andcustomer insights.
Considered in this light, being sociallyresponsible is a fundamental expectation ofconsumers. It is, therefore, a necessity for aproduct or service to succeed. Thus, strate-gic CSR is at the very foundation of buildinga successful brand.
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Body Shop is thequintessential ethicalcosmetics companythat pioneerednatural and ethicallyproduced beautyproducts. Inspired bynature, it shunnedanimal testing whichwas an industrystandard at the time.The company activelyadvocated self-
esteem amongstwomen, evenshunning the ultra-thin female models.Today, it supports fair trade, defendshuman rights and is sensitive toprotecting the planetthroughout its globaloperations.
Odel’s Embarkrepresents a uniqueethical brand that thecompany has created,which is both acommercial success aswell as an initiative thatis tackling real socialissues in the community.
Stray dogs are a healthhazard to citizens, andthey need to bemanaged effectively. On the one hand, whilstthe local authorities areresponsible formanaging this hazard,their approach isn’t
necessarily humane andis reviled by dog lovers.
Embark is a classicexample of how allstakeholders can bebrought together toresolve this issue. First,by mobilising thecommunity to addressreal issues (throughadoption, sterilisationand so on), it is able tominimise and movetowards eradicatingstray dogs in the longterm.
Secondly, this initiativeactively engages with
potential customers ofOdel. It is a project thatis close to their hearts.Through Embarkbranded products, they are able tocommercialise thisinitiative which has now gained wideacceptance, enabling itto plough a percentageof profits back into theprogramme. This makesthe entire Embark brandand community service aself-sustained initiative,creating value for all ofits stakeholders.
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KEY CONSIDERATIONS If being responsi-ble is the base of building a successful brand,then strategic CSR has to be an integral partof the way a business is run. Being responsi-ble ensures accountability and dependability,and it is a core value of being honourable.
Firstly, building this requires knowledgeand information not only from a customer’spurchase consideration point of view, butalso in the broader context of being a stake-holder of the brand or company. There couldbe multiple roles that customers play asstakeholders, which must be recognised. Heor she could reside in the vicinity of wherethe business operates, be an employee of anNGO that can impact the business or a regu-lator who is responsible for the sector and soon. Therefore, insights and information froma customer as well as a stakeholder perspec-tive are key to developing the brand andestablishing a responsible business system.
Secondly, there has to be relevance to cus-tomers and other stakeholders. The way inwhich this can be achieved is to adopt aholistic approach to CSR and branding. Thismeans that the brand and CSR become a partof the manner in which the company goesabout doing its business. This way, neitherbranding nor CSR is ‘bolted’ on. They areintegrated into a system which becomes theculture of the organisation, fully in tune withits customers and stakeholders.
Thirdly, the way in which the organisationapproaches its customers and other stake-holders needs to be unique. This involvesconsidering how the company can innovatefrom a product or service offering perspec-tive (which will benefit the brand) or in theway it goes about doing business responsibly(which is strategic CSR). This can set thestage for long-term value creation.
And finally, the company must considerthis dual approach to be a long-term commit-ment, and not a short-term stopgap measure.Thus, the entire approach to branding andCSR is linked to business sustainability witha long-term view.
In this manner, branding and CSR becomestrategic tools. And once they are integratedinto the business model, long-term initiativeswhich complement and support each othercan materialise.
SYNERGISTIC IMPACTS CSR establishesthe halo on a responsible business, which isall about trust and caring, and being ethical,transparent and helpful. It provides a basefor being morally correct. This is absolutelycrucial for brands to attract and engage withcustomers continuously. Successful brandshave a genuine commitment to improvesocietal well-being through their businesspractices, whilst contributing towards corpo-rate success.
As brands go about carving their ownpoints of differentiation in the market, thisfoundation of committing to improve aspectsthat influence provides an even greater impe-tus for customers to interact with them.
Therefore, CSR contributes to the brandthrough a feeling of genuine believabilitythat emanates from all aspects of a business– processes, systems, culture, employeebehaviour, and the way it goes about engag-ing and communicating with customers andall other stakeholders.
Some examples of organisations that haveachieved this include IBM and Body Shop,at a global level, and Odel’s Embark locally.CORPORATE RESILIENCE Corporate orbrand reputation is only as good as it istoday. Much hard work has to go intoextending that reputation for tomorrow. Andas a business grows and becomes more com-plex, the vulnerability of the brand increases.
Once a strong brand has been built, ensur-
ing it is maintained is as challenging asbuilding the brand itself. This is wherestrategic CSR can play a vital role in main-taining that reputation. When deployed cor-rectly, strategic CSR minimises the risks toan organisation by understanding stakehold-er expectations. It anticipates issues thatcould arise in the future and sets up theorganisation to deal with them before anissue emerges.
Organisations should anticipate issuesthrough their own systems and strict stan-dards, by continuously looking outwards andbenchmarking themselves against interna-tional companies and world-class practices.Brand building and strategic CSR should notbe confined to any specific department ordivision within an organisation. Instead, theymust be actively managed throughout thecompany; from the manner in which it goesabout running everyday operations andinvesting in research and development, tothe innovations it offers customers.
Far too many organisations are resorting to‘green washing’ activities which involve car-rying out ad hoc philanthropic projects withcommunities or short-term environmentalinitiatives that are unrelated to their business– all of this, purely for public relations pur-poses! These endeavours have little value inbuilding resilience and enhancing reputa-tions amongst stakeholders.DRIVING SUSTAINABILITY Whilst CSRprimarily influences the behaviour of a com-pany, once it is aligned to support the brand,it results in an extraordinarily powerful syn-ergistic system that is ingrained in the corpo-rate culture and is difficult to be replicatedby competitors. It also ensures consistencyacross everything the organisation says anddoes, and moves it in the direction of a long-term path of sustainability.
Many organisations view branding andCSR independently. This results in foregoinga significant amount of value through theinvestments that are made. There is muchsynergy to be gained by looking at themthrough an integrated lens which can buildsubstantial equity for the business.
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– Compiled by Ruchi Gunewardene and Tiara Anthonisz
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