The natural reaction in an economic downturn is to cut costs regardless of if you are an individual person or a multinational company. And you could be forgiven for assuming that the first thing to be put on a company’s scrap heap is its investment in corporate social responsibility.
More often than not, CSR strategies are employed by companies to strengthen their brand reputation in the face of consumer pressure. However with consumers pre-occupied with getting through the recession, many companies may think they have room to postpone their investment in CSR in favour of focusing on how to maximise profit from the lowest possible investment.
But that is assuming that low production costs are incompatible with sustainable modes of production. In fact many of the world’s leading companies are finding that production costs and sustainable practices are not mutually exclusive. It is actually the integration of sustainable practices into their core business strategy that are leading them through the recession.
The common realisation amongst these companies is that sustainable business practices correspond to more than just an improved brand reputation. These practices are a means of cutting their costs, operating more effectively and giving themselves a competitive advantage.
In the last few weeks alone there have been numerous examples of leading companies further integrating sustainable practices into their core business strategy despite the recession.
For example, at the beginning of August a group of leading shoe companies, including Adidas, Timberland and Nike demanded a moratorium on the destruction of the Amazon rainforest from their leather suppliers in Brazil.
As a result these companies will not be buying leather from farms that are responsible for deforestation regardless of if they are legal. They have also demanded the development of a traceability system by their suppliers within a year. This will mean they can identify the ranch that every piece of leather they buy has come from.
It is estimated that 17 percent of the world’s carbon emissions comes from the destruction of rainforests for the use of agriculture. This is a bigger contributor to global carbon emissions than the world’s transport system.
A statement from Adidas said: “Joining together with our industry partners in this effort through the Leather Working Group insures an ongoing and sustainable method to stop deforestation in the Amazon Biome region.”
In a similar step Cadbury has committed to producing its Cadbury Dairy Milk chocolate bar in the UK with cocoa that meets the ‘Fairtrade’ standards determined by the Fairtrade foundation. These standards include a minimum price for raw products. Soon Fairtrade Dairy Milk bars will be available from nearly 30,000 outlets throughout the UK.
This commitment to Fairtrade has been extended to Canada, Australia and New Zealand who are expected to start producing Fairtrade chocolate by early 2010. Combined with the existing Fairtrade market in Britain and Ireland, the five markets will quadruple Fairtrade cocoa sales from Ghana, adding an additional 15,000 tonnes to the current level of 5,000 tonnes.
These steps are the latest in Cadbury’s Cocoa Partnership which was launched in 2008 with the objective of securing sustainable cocoa farming in Ghana, India, Indonesia and the Caribbean through a £45 million investment.
With the tangible results of the Fairtrade partnership, Cadbury’s commitment to sustainability seems like more than just window-dressing and has continued regardless of the recession.
Todd Stitzer, Cadbury’s Chief Executive, said: “By continuing to work with our different markets and with the international Fairtrade network, we can further extend the success of the Fairtrade movement and, most importantly achieve greater impact for farmers in Ghana.” The extent of this impact was highlighted by Harriet Lamb, Executive Director of the Fairtrade Foun-dation, who said: “This is a real milestone for Fairtrade and for cocoa growers in Ghana. Cadbury Dairy Milk will create a step change in awareness of Fairtrade here in the UK, whilst in Ghana it could potentially transform the lives and opportunities for thousands of people in cocoa growing communities.” What these examples show is a clear shift in focus from business success being determined purely by creating shareholder value to business success being determined by creating stakeholder value. This means value for your shareholders, for your customers, for the people involved in your supply chain and the communities these stakeholders live in.
But this shift in focus is not widespread. Although 81 per cent of FTSE 100 companies are producing stand-alone reports on corporate responsibility, only 2,380 of the millions of companies operating around the globe are producing such reports.
With such a small percentage of companies genuinely incorporating sustainable business practices into their core business strategy, the impact of the few that are is negligible.
Such statistics have led to wide-spread criticism of the CSR movementfrom the non-corporate world. Sir Jonathon Porritt, the chairman of the British government’s Sustainable Development Commission, recently described the CSR agenda as “an increasingly empty and illusory notion”.
These criticisms are backed up by investigations into the production phase of many supply chains.
Impactt, a global supply chain consultancy, recently audited 98 production sites across 11 countries to assess global labour standards. The report found that almost half of the sites visited were failing to pay the nationally set minimum wage, thus leaving workers with no option but to work longer hours to cover their costs of living. At more than 75 percent of the sites visited workers did more than 60 hours a week. The report also found incidences of child labour in 24 percent of production sites and a decrease in the presence of effective trade union representation compared to the year before.
The report concluded that: “Improving labour practices and reducing the prevalence of labour standards issues is more daunting than ever in the current economic climate, where all actors are under pressure to deliver more for less.”
But just because the battle is daunting, it doesn’t mean it is impossible. There are a number of forces that are pushing the CSR agenda in the right direction.
The first is consumer pressure. The consumer is the one voice that every business must listen too. In September 2008, The Grocer, Britain’s leading food market magazine, reported that, “despite feeling the pinch, 92 percent of consumers still claimed to be willing to pay extra for a product perceived to be ethical and 76 percent said they would choose products benefiting people rather than the planet.”
Statistics like these show that in countries where ethical labour standards are on the news agenda people are taking notice and the recession is not affecting either their ethical voice or their consumer decisions.
The second is the climate change agenda. Countries are beginning to come together to tackle climate change through setting carbon emission targets. Recently the EU committed itself to an 80 percent cut in carbon emissions by 2050 and a 20 percent cut by 2020. Although the targets are set for the distant future, if the rhetoric is to be believed businesses are going to have to change the way they operate to meet these targets. The sooner they do this, the less painful it will be.
The third is the recession. In a recession, companies go out of business and it is often the less sustainable companies who are worse at managing risk that fall first. If there is one positive to come out of the recession, it might be to expose those companies with unsustainable business practices whether they be financial, social or environmental.
This is certainly the case in the financial sector where many of the world’s biggest banks have suffered due to the unsustainable risks they have taken in financial markets. Hopefully the lessons of this recession will be learnt for years to come.
Impactt claims that: “The challenge for companies is how to deliver products embodying customers’ values, whilst providing ever better value for money. Retailers and brands which are able to pull off this double act will succeed through the downturn and beyond.”
The difficulty comes in making the corporations across the world recognise this and then act. Despite a few green shoots of hope to point to, we are still a long way from seeing businesses driven by ethical values on a significant scale.