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Vol.4 Week 42 14/10/2008
FEATURE ARTICLES
The future for CSR: Issues for the next decade
by Richard Welford  rwelford@csr-asia.com
Being aware of the issues that interest stakeholders now is quite a challenge, but if you are to build an effective long-term CSR strategy, then what are going to be the challenges in ten years time? In order to get a glimpse into the future, CSR Asia has undertaken some research of its own to identify what CSR experts in the Asia-Pacific region think are the issues facing companies over the next decade.

In order to do this we interviewed 53 people from business, NGOs, government and academia who are well known for their views on CSR and to see what trends they think business in the region will have to deal with. Their insights into the top ten issues facing business in a decade from now reveal what we all need to start thinking about now. Here is the top ten in order of importance:

By far the greatest challenge facing business is going to relate to the environment and climate change. I find it interesting that twenty years ago when I started out doing work for the private sector I was involved in mostly environmental work, developing policies and carrying out audits. That work seems to have come round full circle, although the environmental agenda has certainly been ratcheted up.

The emphasis in the future is different though and is centred around climate change and the need to develop climate change strategies and reduce carbon emissions. This means starting with carbon-auditing and then putting in place strategies for reduction in climate change impacts, mitigation and adaptation. But business is also going to have to take into account other environmental issues as well and particularly where these environmental stresses are heightened by climate change. Here, water shortages and water contamination is going to be high on the agenda, according to the experts interviewed.

The new emphasis on the environment will also require companies to look hard at the sourcing of raw materials, waste management, the management of toxic substances, health impacts of environmental degradation and biodiversity. A key threat facing the private sector relates to the potential for social unrest caused by environmental degradation.

That is not to suggest that issues associated with the ubiquitous sweatshop will go away. Indeed the experts also see issues associated with labour being heightened. This will apply to a company’s own employment practices as well as to workers along the supply chain. There is likely to be more of an emphasis on labour rights as human rights. This means the recognition that workers have fundamental human rights and must be treated with respect rather than mere factors of production. A decent workplace, recognition of the particular rights of women workers and migrant workers’ children are all going to be hot topics.

An increased emphasis on transparency is also predicted with a move away from the glossy reports that only reveal the good things about a company’s activities towards true accountability.   Responsibility might be about doing the right thing but accountability means proving that you are being responsible and this will require a whole new approach to revealing the positive and negative aspects of doing business. Those companies that are unable to disclose an accurate account of their activities are going to lose trust and shareholder value.

The fourth trend is going to be the institutionalisation of CSR. We have already seen a number of governments in the region develop new laws, standards and guidelines that force or encourage businesses to take on CSR activities. But this is likely to be extended as other institutions such as stock exchanges and accountancy bodies begin to increase the CSR requirements of their members. The much awaited CSR26000 was seen by some experts as a further institutionalisation of CSR if it comes to be seen as setting minimum standards for the activities of companies.

An increased emphasis on stakeholder engagement is also predicted, with companies building governance structures and even decision-making processes with stakeholders in mind. This means finding out what stakeholders views are about issues and allowing that to influence decisions being made at the corporate level. It also means developing much more sophisticated modes of communication with a broad range of stakeholders and embedding that into the governance of the organisation.

A battle for talent is going to be the big human resource issue over the next ten years. Recruiting and retaining the human resources best able to deliver quality work is already a problem and likely to become an even bigger one. This is going to be compounded by a new generation of young people who are less interested in a traditional career structure and much more interested in filling their lives with a range of stimulating experiences. This means they are more likely to move jobs and have multiple careers. Attracting the best talent is therefore going to require new ways of thinking about employment and much more flexible arrangements if staff are going to be effectively retained.

A move from philanthropy to effective community investment is also seen as an important development in the next decade. There will be fewer donations to local charities and initiatives and a much more strategic investment in the communities impacted by business. But the shift to community investment is also going to mean much more sophisticated measurement of the returns to that investment. That means measuring both the benefits to the community and well as the benefits to the business itself. Few companies are able to do that effectively at the moment.

According to the experts interviewed we are going to see a deepening of supply chain concerns with first tier audits of factories no longer being enough to satisfy stakeholders worried about sweatshop labour and product safety. This is going to mean new partnerships with suppliers based on trust rather than inspections and it almost inevitably means the rationalisation of supply chains where large companies with shared CSR values are likely to be preferred over companies that cut corners and find it difficult to comply with the law. But environmental issues are also going to become more important in supply chains too. The audits of come companies only really deal with labour issues and this is not going to be consistent with a new emphasis on the environment and climate change in the future.

But experts also saw supply chain issues moving from concerns about how products are made to whether those products themselves are safe and healthy. Recent scandals relating to product safety in the region has made this aspect of supply chain management key and when we consider where the problem arose, we again see the need to go beyond engaging with only first tier suppliers. Product contamination and adulteration is often occurring deep down the supply chain.

CSR Asia sees itself as a social enterprise that operates in a competitive environment but that does not necessarily maximise profits. This type of organisation is one where the experts we interviewed saw as an important new development. A merger of business and NGO models is going to create enterprises that are sustainable into the long run because they adapt to the market rather than constantly relying on donor money. This they are able to affectively deliver much needed social services in an effective and efficient way.

The final issues in our top ten list related to the private sector’s role in poverty alleviation. Particularly in the Asia-Pacific region we still see many people and communities that have not benefitted from the economic growth that has reduced poverty elsewhere. The very poor tend to have few resources, few skills and few opportunities to engage in economic activity and the experts interviewed saw a range to innovative measures being taken by the private sector to try to put this right. One of the key challenges identified is to engage with the growing wealth gap now emerging in some countries and potentially threatening social stability.

After examining what the key issues were, we were also interested in knowing who or what institutions are set to shape these issues. Those influencing the decisions are (in order):
  1. NGOs and civil society/community organizations
  2. Companies themselves
  3. Government and politicians
  4. Investors and financial institutions
  5. Consumers
  6. Employees and trade unions
  7. International and inter-governmental institutions
  8. Religious leaders
  9. Media
  10. Educational institutions
Not surprisingly, it is still civil society organisations seen as setting the agenda around social and environmental issues. Yet most of the experts saw businesses as being increasingly part of the agenda setting process, more so than governments, in fact. Investors were seen as relatively more important that consumers by our experts. Somewhat surprising is the relatively low ranking given to the media.

Some illustrative quotations from our research illustrate the various trends seen by our experts. There is clearly a recognition that the dividing line between businesses and NGOs is going to be increasingly blurred with one respondent saying “NGOs will move closer to business and we will see the development of social enterprises to deal with societal challenges” and another arguing that “NGOs will play a role in assisting businesses with their CSR agendas”.

The role of government was seen as important but perhaps less clear. “Governments will retain substantial power through their ability to enact laws and regulations” said one person but another argued that “government will be less important in the future, their role is shrinking because of globalisation”.

“Businesses will see the business case for CSR and take the lead” said one respondent but there was also a recognition that business have to consider key concerns from their customer base:   “Consumers will be voicing greater concerns relating to product safety”.

“Institutional shareholders will demand higher CSR standards and risk mitigation strategies” and “there will be role for inter-governmental organisations pushing initiatives such as the Global Compact”, illustrated key roles for other institutions.

But a key message that comes throughout the research was the view that “stakeholders will expect to be heard and involved in decision-making”.
 The third part of our research looked at what businesses need to do to start to deal with these issues and develop effective CSR strategies. Again, the following issues are in order of importance:

Capacity building both within the organisation and outside of it was seen as critical. The view was that there were still insufficient skills and knowledge being developed within companies and that there was inadequate good consultancy capacity in the region on CSR. Internal and external education and training is seen as vitally important to build capacity. That capacity also needs to be extended to supply chains to deal with demands for a move beyond tier one auditing.

Critically, most experts saw the need for properly structured, ongoing stakeholder dialogue as critical to the development of a CSR strategy. This means not only having a clear methodology for engaging with stakeholders but also improving communications with them. Companies were seen as needing to become part of a network of trust between a whole range of different stakeholders in an ongoing relationship. In so doing, the needs and demands of stakeholders need to be considered in governance structures and in decision-making.

Embedding CSR into the organization is seen by our experts as a particular challenge. There needs to be a new values-based leadership from the top of the organisation and a more holistic approach to businesses that emphasizes on only economics but also the whole range of social and environmental impacts that a business is responsible for. Companies are going to have to think long term to deal with some of the emerging challenges outlined above and a key tool suggested by a number of experts was to involve stakeholders in some scenario planning.

Embedding CSR into the organisation is also going to require better internal communications and increased reporting and better transparency and accountability. To be strategic, CSR needs to be a core business strategy linked to brands and reputation. 

Businesses are going to have to look more closely at partnership building at a number of levels: With NGOs, with local communities and with any stakeholder who can add value to the business. There is likely to be a growth in public-private partnerships in many parts of the region, with governments expecting businesses to play a role in creating effective, efficient societies and competitive economies. Business to business partnerships were nevertheless seen as one of the most effective ways in dealing with the many social and environmental challenges facing the region.

Experts point to the need for innovative ways of dealing with the challenges that remain, including climate change, poverty and human rights. It was noted that some of the cleverest people in the world are running businesses and that if their talents could also be harnessed to engage with the world’s remaining challenges then this is likely to be productive. Innovation is about matching talent with challenges therefore and involving stakeholders in innovative strategies and projects to create productive change.

Much was said by the experts interviewed about the need to move beyond first tier auditing and finding ways to create new relationships with suppliers based on shared visions about CSR. Critical here is going to be the rationalization of supply chains, cutting the number of suppliers and placing more orders with the growing mega-factories that are taking CSR seriously and pushing it down their own supply chains. The move from audits to capacity-building was much discussed but the new element in all of this is the need to better track products and components down supply chains to ensure product responsibility. That is going to come expensive.

The need to have policies and systems in place to attract and retain talent was seen as particularly important to the long terms success of businesses. From a CSR perspective issues such as work-life balance, and strategies for diversity and inclusion are seen as vital. Employment packages of the future are going to have to be much more flexible with build in systems for long leave, part-time working, career breaks, exciting employee volunteering opportunities and work-life management.

As important as developing the business is going to be the need to develop communities alongside that business was a view shared by many of the experts interviewed. This means properly measuring community impacts (positive and negative) and having long-terms investment strategies involving communities and interested stakeholders.

Companies are going to have to engage in much better non-financial risk management if they are not to get caught out by the many challenges facing them in a world where information (accurate or not) is increasingly easy to find. All new projects, developments and investments will have to go through a broad due diligence procedure. That due diligence must involve stakeholders and be transparent and accountable.

Lastly, good CSR is grounded on good governance within the organization. A new emphasis on fair competition and anti-corruption is still seen as vital in the Asia-Pacific region where, quite frankly, governance is often very poor.

In the Asian region, CSR for the last decade has been very much based on the prevalent outsourcing model where concerns over sweatshop labour has dominated. Whilst still important there is clearly now a big new challenge that we have to engage with and that is the environment and, particularly, climate change. Labour rights are going to be increasing couched as human rights.   Community investment will be expected to bring greater returns.   Supply chain issues are going to become deeper and more concerned with product responsibility. There is going to be a battle for talent. Companies are going to be expected to help find solutions for remaining challenges in the region such as poverty alleviation.

To deal with these new expectations of business we are going to see the need for capacity building at a number of different levels and better embedding CSR into the DNA of a business. This all has to be done in an open, transparent and accountable manner with a new emphasis on stakeholder inclusion.

Our experts clearly see some huge challenges ahead for the business sector but all were agreed that this is the direction in which businesses should and can head. ■

 

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