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Potential effect of CSR interventions – Lessons learned from 4 countries Dr. Sakis Kotsantonis
Potential effect of CSR interventions –
Lessons learned from 4 countries
Dr. Sakis Kotsantonis
Corporate Social Responsibility (CSR)
Multiple Definitions of Corporate Social Responsibility*
• “A concept whereby companies integrate social and environmental concerns in their business operations and
in their interaction with their stakeholders on a voluntary basis
• “Corporate Social Responsibility is the continuing commitment by business to contribute to economic
development while improving the quality of life of the workforce and their families as well as of the community
and society at large.” World Business Council for Sustainable Development
Even more for Sustainability & Sustainable Development:
• “Sustainability is a system of corporate strategy, business model and operations that integrate economic,
environmental, social and governance factors to create long-term economic value”
What is CSR?
* Alexander Dahlsrud, 2006. “How Corporate Social Responsibility is Defined: an analysis
of 37 definitions, Corporate Social Responsibility and Environmental Management, 15, 1-13
Environmental Social
Economic
Multiple
stakeholders
Long-term
horizon
0.00
5.00
10.00
15.00
20.00
25.00
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Sustainable Strategy: a strategy that
enables a company to create value for its
shareholders while at the same time
contributing to a sustainable society
Sustainable society: a society that
meets the needs of the current
generation without sacrificing the needs
of future generations
The need for a sustainable strategy Sustainable strategy: Does it pay off?
* Robert G. Eccles, Ioannis Ioannou and George Serafeim, 2011. “The impact of
Corporate Sustainability on Organizational Processes and Performance”
$
High Sustainability group
Low Sustainability group
Evolution of $1 invested in the stock market in
equal-weighted portfolios
Fin
an
cia
l P
erf
orm
an
ce
Nonfinancial Performance
No Innovation Minor Innovation
Moderate Innovation Major Innovation
Low High
Hig
h
Low
In the absence of substantial
innovation, the financial performance
of firms declines as their
environmental, social and
governance (ESG) performance
improves. To simultaneously improve
both kinds of performance, they need
to invent new products, processes
and business models.
The performance frontier Innovating for a sustainable strategy
* Robert G. Eccles and George Serafeim, 2013. “The performance
frontier”, Harvard Business Review
Identify the material ESG issues of nonfinancial
performance
Understand the relationship between financial and
nonfinancial performance
Find ways to innovate in processes, products, and
business models
Utilize stakeholder engagement to foster innovation
Practice sustainability / integrated reporting for both
external and internal benefits
Pushing the boundary of the performance frontier From philanthropy to inclusive CSR
Philanthropy
Social
investment
Policy
dialogue
Inclusive
CSR
Business benefits
De
ve
lop
me
nt b
en
efits
Regulation Policy Development
Facilitation Internal CSR
Development of new
policies to enable
sustainability innovation
10% job creation, 5%
of total share of
renewable energy use
Co-operation with private
sector and society in
order to achieve
sustainability policy
objectives
R&D endorsing,
financial incentives
CSR of each
governmental body
Green procurement,
percentage of female
employees
Government initiatives in
legislation, administration
and enforcement
Emission trading
schemes, regulation of
supply chain
management
The role of government Setting goals, driving change, leading by example
Developing Egypt’s sustainable development policy
Financial System
Education & Labor System
Cultural System
Political System
Assist the ECRC in developing Egypt’s sustainable
business promotion policy.
Measure
• Competition and
regulation
• Anti-self-dealing index
• Absence of corruption
Measurement
Laws encourage
competition in the
country
Laws limit self-dealing of
insiders
Inverse of average
corruption score
DIS
CLO
SUR
E
Create a framework based on nation-level measures that have proven to affect firms’ corporate social
performance
Case studies - Disclosure
0
1000
2000
3000
4000
5000
6000
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Companies Disclosing ESG Data
Disclosure on sustainability topics has dramatically increased the last 20 years
What is the effect of regulatory interventions on the companies’ nonfinancial
disclosure practices and organizational processes?
The countries Data has been collected on 4 countries that mandated sustainability disclosures before 2011
High quality corporate reporting
World-class corporate governance and
protection of outside investor rights
High quality legal enforcement regime
No significant social or environmental
problems in Denmark
High levels of corruption, poverty,
social inequality, and HIV infection
among the population in South Africa
Denmark, South Africa
High ESG disclosure before regulation
Emerging economies which have
experienced impressive economic growth
in the past few decades
The quality of the corporate governance
structures and corporate reporting are
considered higher in Malaysia compared
to China
Social and environmental challenges are
more severe in China (increasing levels
of social inequality, concerns about
human rights, and environmental
pollution)
China, Malaysia
Low ESG disclosure before regulation
Mandatory CSR reporting
CSR policies worldwide – Case studies Denmark, South Africa
Emphasis on supply chain relations
Firms signed on the United Nations Global
Compact
No increase in disclosure
How companies responded How companies responded
Firms significantly increased the probability to get
assurance on their ESG disclosures
Firms signed on the Global Reporting Initiative
(GRI)
Firms increased disclosure
Mandatory CSR reporting
CSR policies worldwide – Case studies China, Malaysia
Emphasis on the economic aspects of CSR
Firms increased disclosure
How companies responded
Emphasis on philanthropic activities
No increase in disclosure
How companies responded
Conclusions
• How firms respond to disclosure regulations depends on the local context and the underlying
understanding of the motivations for ESG disclosure
• A clear direction from the government is crucial to steer the efforts of the CSR activities
• A mishmash of CSR initiatives does not add up to a sustainable strategy. A strategy must address
the interests of all key stakeholders (investors, employees, customers, government, NGOs and
society at large)
• Businesses need to understand the material issues for their business model and utilize their core
competencies when they decide on where to focus their efforts
Appendix
Mandatory CSR reporting
CSR policies worldwide – Case study Denmark
•October of 2008, the Danish Minister for Economic
and Business Affairs: Businesses that satisfy 2 out of
3 criteria were required to supplement their
management’s review with a report on social
responsibility
Emphasis on supply chain relations
Firms signed on the United Nations Global Compact
No increase in disclosure
The reform
How companies responded
Mandatory CSR reporting
CSR policies worldwide – Case study South Africa
The reform
•2010: The Johannesburg Stock Exchange (JSE)
mandated the disclosure of sustainability information
2011: Mandatory integrated reporting
•Emphasis on the ideas of leadership, sustainability,
and corporate citizenship.
•Sustainability elements in an integrated report should
be independently assured
•Mandatory on an “apply or explain” basis.
How companies responded
Firms significantly increased the probability to get
assurance on their ESG disclosures
Firms signed on the Global Reporting Initiative (GRI)
Firms increased disclosure
Mandatory CSR reporting
CSR policies worldwide – Case study China
•2008: The Shanghai Stock Exchange (SHSE) &
Shenzhen Stock Exchange (SZSE) mandated certain
listed firms to disclose ESG information
•For SHSE firms included in the SHSE Corporate
Governance Index, firms with overseas listed shares,
and financial firms.
•For SZSE: firms included in the Shenzhen 100 Index.
Emphasis on the economic aspects of CSR
Firms increased disclosure
The reform
How companies responded
Mandatory CSR reporting
CSR policies worldwide – Case study Malaysia
•2007: The stock exchange Bursa Malaysia made
ESG disclosure a listing requirement for all listed
firms. This followed the Malaysian Prime Minister
speech announcing the requirement for listed
companies to report on their CSR initiatives.
•Obligation to disclose a description of the CSR
activities or if there are none a statement to be made
acknowledging the absence of such activities.
Emphasis on philanthropic activities
No increase in disclosure
The reform
How companies responded
Evolution of ESG Topics
0%
25%
50%
75%
100%
1975 1985 1995 2005 2010
Intangible Assets Tangible assets
Siemens bribery scandal
BAE Systems bribery scandal
Chiquita Brands International alleged financing of paramilitary organizations
Enron accounting fraud, involving Arthur Andersen
FlowTex, one of the largest corporate scandals in German history
Halliburton overcharging government contracts
Lockheed bribery scandal
Royal Dutch Shell overstating oil reserves
Bernie Madoff’s Ponzi scheme
Social Pressures Environmental Pressures
Governance Failures Asset Base
____________________ Sources: OECD “An Overview of Growing Income Inequalities in OECD Countries: Main Findings”; OECD; Ocean Tomo, “Intellectual Capital Equity®”
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