Archive for November, 2008

ESG as Risk Management

WBCSD LogoIs investing just by looking at financial statements ‘so last year’ ?

Investment analyses that include CSR related metrics (previously mentioned in “Do the Math on CSR“) are increasingly being seen as the way of the (very near) future.

Robeco, a dutch financial services provider, predicts the market for investment products that take into account these CSR metrics will be brought into the mainstream by 2015, constituting 15 – 20% of global assets under management (AUM).

“It’s a tool for better assessing risk” Head of the CFA Institute’s Centre for Financial Market Integrity, Charles Cronin, says of ESG, “People don’t want any surprises these days (…) An ESG framework helps you manage an aspect of risk”

“Responsible investors benefit from better risk management, greater transparency, and an active engagement with companies to promote better management” Oxfam Policy Analyst, Helena Vines Fiestas

Demand for these investments also comes from the ‘the global consciousness’ being rapidly more concerned about climate change and the environment. Christian Werner, Sustainable Asset Management’s (which Robeco owns a 85% stake in) Chief Investment Officer, explains, “If we don’t investment in these companies fast, we won’t get anywhere near the solution” referring to the argument that growth will have to come from these sectors if the future of humanity is to be secure, and therefore they provide an excellent investment opportunity.

Major players have also been getting in on the action:

– Deutsche Bank recently published “Investing in Climate Change 2009: Necessity and Opportunity in Turbulent Times” (Also mentioned at Envirovaluation)

– HSBC has instituted a Climate Change Centre of Excellence headed by co-author of “Sustainable Investing: The Art of Long Term Performance”, Nick Robins

– Goldman Sachs is about to launch Sustain, a concept which will form the basis of a fund that draws on environmental, social and demographic developments to predict investment success

Based on an article by Sophia Grene, published in the Financial Times: Find it Here

Do the Math on CSR

CSR Simply Works Better Is there such a thing as a ‘Typical CSR Practitioner’ ? When we think of such a role do we imagine someone with significant ‘on the ground’ experience with expertise in Environmental Management or Community Relations or are we imagining an individual with a several years of financial management experience and a CPA?

Chances are most of us would imagine the former, a highly passionate advocate of responsible business often with significant NGO experience.

This is probably not too far from the truth, most CSR practitioners cannot boast of a highly developed understanding of financial metrics, the difference between return on assets (ROA) and return on equity (ROE) for example.

These metrics are key however as they are the language of the accountants, those with financial expertise and often express real concerns that the financial impact of CSR activities are acutely difficult if not impossible to definitively measure.

More important, these metrics are the language of the boards, where strategic decisions regarding CSR are made.

CSR has however been effectively correlated with several metrics that boards do understand.

– Price Premiums with Consumers (see: Doing Good Trumps Design and Innovation)

– Greater Employee Satisfaction

– Favour with Regulators

For more firms to move beyond elementary CSR decisions, such as implementing energy efficient light bulbs because they represent direct future savings in energy expenses, a greater number of metrics which ‘speak the language’ of accountants and boards needs to be developed.

Business schools are a key catalyst towards the development of these metrics via 2 actions:

– Training Individuals with Financial Experience in the fields of Sustainability and Stakeholder Relations

– Training Individuals with NGO & Community Relations Experience in the Langauge of Business

Beyond Grey PinstripesAn increasing number of MBA programs incorporating social and environmental perspectives into their courses and also dedicated CSR modules. An overview of these programs can be found on the Aspen Institute’s “Beyond Grey Pinstripes” report published annually.

I anticipate that very soon, we will see a growing number of ‘Bilingual’ CSR Practioners, in touch with communities and environmental issues while also comfortable in a boardroom, generating metrics that business decision makers will easily understand.

Inspired by: Prof. John Peloza‘s article on the Financial Post and Katherine Liew’s post “Why everyone should work in an NFP”

Doing Good Trumps Design and Innovation

GoodpurposeWhen choosing products, a whopping 42% of consumers  value a brand’s commitment to a social purpose over both design and innovation!

This was a key finding in goodpurpose’s ‘Global Study of Consumer Attitudes’ report published this week.

The report is extremely timely as many firms would be reconsidering their commitment to non-core, cause-related activities. It sends a resounding message that if anything, they should be investing more into it than ever in the face of recent economic events.

A couple of compelling reasons why:

  • 7 in 10 would remain loyal to a brand that supports a good cause
  • 7 in 10 have either given the same or more despite economic conditions
  • The Chinese consumer, an increasingly lucrative market, has emerged as a clear leader in the above metric, with 58% giving more despite the economic downturn

Why are they doing it? In a word, contentment.

42% quote “helping others and contributing to my community” as their largest source of contentment compared to “the shopping experience” which only 25% agreed with as a source of contentment.

“They can bring ‘double value’ to their customers, who get a product they want, plus support for a cause they believe in” – Mitch Markson, founder of goodpurpose

The term “return on involvement” makes an appearance in the report, referring to an increasingly popular metric which recognises participation and involvement (e.g. in causes) as true builders of brand loyalty. “Doing Good”, which can create stronger emotional bonds between the brand and the consumer, can hence translate rather easily into “Doing Well”.

more at MarketWatch

Collective Agreements = CSR ?

MPSVThe Czech Ministry of Labour and Social Affairs (or MoLSA, its hip new Acronym) Website is a wonder.

It communicates that the Ministry believes that CSR asserts itself in the Labour Law in the form of… Collective Agreements! These uncanny instruments that allow for employees and employers to agree upon obligations “above the statute-given minimum”.

Weeks ago, I had the pleasure of delivering a lecture to a group of students at VSE, the country’s most prestigious business school, on CSR and remember a lament by a professor.

“CSR around here, is sadly too often corporations grudgingly complying with regulations set by the Government… and now, the EU” – VSE CSR Professor

How long will it take for business owners in the region to see that CSR makes strategic sense?

How long will it take for the notion that profitable & responsible business is not an oxymoron.

I have found the above one of the hardest things to communicate in a society where corrupt politicians are viewed to be a given, a matter of course.


Click MoLSA Information’ on its front page, you will be presented with 3 items, 3 pieces of information which the Ministry apparently believes is all you need to know about them.

1. Contact Information (fair enough)

2. Basic Indicators in the Czech Republic 2002 (and they do not mean FROM 2002)

3. Petr Nucas – Curriculum Vitae (This is the current Minister’s CV, should anyone be in the market for one)

China Carbon Trading Framework Released

CECPAToday, at CECPA in Beijing released details of the research being conducted for China’s Carbon Balance Trading Framework Report. A report that its chairman, Pan Yue, hopes will nudge China on its way towards a Low Carbon Economy, a goal which he describes as a major breakthrough required for China to build an ecological civilisation.

CECPA Press Conference

CECPA Press Conference

After carefully looking at the successful experience of leading nations in this field, the project team tasked with this piece of critical research have put forward their recommendation of implementing a “Carbon Source- Carbon Sink” trading system between Chinese provinces. The researchers also suggest that carbon be used as a rigid target for the monitoring, identification and control of economic activity.

Also Reported at: CSR Asia & ChinaCSR

Asia & The Cost of Extreme Weather

Carbon Disclosure Project Launch

Carbon Disclosure Project Launch

Last Month in Taipei saw the launch of this year’s edition of the CDP (Carbon Disclosure Project) Report for Asia Ex-Japan conducted by ASrIA (Association for Sustainable & Responsible Investment in Asia).

The report has seen increasing participation over the years with this year’s edition involving 220 companies throughout Asia (Taiwan, Korea and Singapore in particular had high response rates). Not only has the report increased in breadth but also in the depth of responses it does receive.

This year’s responses were noted to have significantly moved past generic responses to more specific disclosures with many more companies willing to report on initial climate change work.

Traditional leaders in ESG within Asia have been observed to be experimenting intensively with targets and metrics which could very well define Carbon Leadership in the region.

Also highlighted is proof that the the Global Power Brands are working with some success in encouraging their extensive supply chain to begin reporting on carbon emissions.

Extreme Weather Events: A Material Risk to Facilities & Supply Chains

One of the key themes of the report was the rise in recognition of extreme weather events as requiring both mitigation and adaptation.

Specific weather events cited include:

Man Stoking Forest Clearing Fires in IndonesiaHaze over Kuala LumpurSand Storm Engulfs Chinese Cities

Hynix, a Korean semiconductor supplier, specifically disclosed that its operational processes were permeated by yellow sand from these Sand Storms, causing damage to products and plant.

Basic recognition is widespread with 70% of respondents citing the potential of Weather Events to:

  • Disrupt Production
  • Interrupt Services
  • Impact Assets

However only a handful of companies have delved further to highlight information such as the consequent impact of weather events on production cost.

A major catalyst for enhanced risk management in this area are the Climate Change Assessment Processes conducted by ESG consultants and their uncovering of the greater impacts of weather risk. Examples of enhanced risk management include being insured for ‘Climate Change driven Financial Risk Management’ as disclosed by LG Electronics.

There are some companies however that indicate that they do not perceive weather events as potential business risks at all, one of these companies is Tata Steel.

We are not affected by Weather Events, Change in the Weather Pattern, Rising Atmosphere or Sea Level RiseTata Steel

Lastly, some companies actually report potential benefits from these weather events. Members of the Telecoms industry for example cite the potential for these events to allow them to demonstrate the potential of mobile communications and the potential for their technologies to be employed in the development of environmental monitoring solutions.



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