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INSTRUMENTS OF CORPORATE SOCIAL RESPONSABILITY IN THE FORESTRY SECTOR

Davide Pettenella

University of Padova - Italy

Yoshkar-Ola, 24-24 April 2004

Contents

• Marketing: development path• Social marketing: CSR• Foundations of CSR• Different level of commitments in CSR• Control systems

Why?Development of marketing objectives

With the total marketing, focus is put on the selling systems, on mark-up, on the marketing mix = the 4 Ps:

• Price

• Products

• Place

• Promotion

Just at the very beginning (till the ’30s of last century) marketing was focused on distribution and logistic (how to deliver at the lowest cost some products)

Social marketing

Company’s decisions are taking into account the long-term interests not only of the internal but also of the external, indirect stakeholders(Kotler, Armstrong, Saunders, Wong, 2001 mod.)

The company’s stakeholder categories(from Lesourd & Schilizzi, 2001 mod.)

Consultants, suppliers, sub-contractors

Indirect

Manager,employees, investors

DirectInternal

local community,NGOs, media, professional organisations, general public

Customers, lenders, tax agencies

ExternalCompany’s organizational structure and physical location

Invo

lvem

ent i

n th

e bu

sine

ss a

ctiv

ity

2

(Source: S.Baffoni)

Indirect external stakeholders: an example

Social marketing � Corporate Social Responsability(CSR)European Commission definition of CSR:

“CSR is a concept whereby companies integrate social and environmental concerns in their business operations and in their interactions with their stakeholders on a voluntary basis”

http://ec.europa.eu/employment_social/soc-dial/csr/index.htm

Marketing based on ethical principles:

• safety and health of workers, consumers, local population

• no discrimination, no social inequality • right to information, transparency• sustainable use of natural resources

(precautionary principle)• ...

There is no conflict (no trade-off) between ethics and economics (profit, value of the assets, …)

Triple bottom line

The idea that the overall performance of a company should be measured based on itscombined contribution to: • economic prosperity, • environmental quality• and social capital.

Social capital: the stock of shared meaning and trust in a givencommunity.Social capital is a prerequisite for cooperation and organised humanbehaviour, including business. Social capital can be transformed, consumed or replenished, just as financial capital.

CSR voluntary instruments and initiatives (EC, DG E&SA, 2004 mod)

A. Socially responsible management1. Code of conducts2. Management standards3. Accounting & auditing

B. Socially responsible consumption1. Reporting2. (Eco) labelling

C. Socially responsible investment1. Compensatory investments 2. Ethical index 3. Ethical finance

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A. Socially responsible management

1. Code of conducts2. Management standards3. Accounting & auditing

A1. Codes of conduct

2 definitions:• a formal statement of the values and business

practices of an organisation and sometimes itssuppliers.

• a statement of minimum standards together witha pledge by the company to observe them and to require its contractors, subcontractors, suppliers and licensees to observe them.

Types of Codes of conduct

• Company codes (adopted unilaterally); “mission”statement; “vision” statement

• “Trade association” or “sector-specific codes”adopted by a group of companies in a particular industry

• Multi-stakeholders international and national codes

• “Model codes” developed by trade unions, NGOs and other organizations

• Intergovernmental codes negotiated within international organizations

Contents of a codes of conduct

Entering level-Origin-Not from HCVF

Minimum requirements

-Respect of Laws-Not from protected areas

-FSC on tropical species with high value

4Woodstandard IKEA to shift to the higher level

Step 1

Step 2

Step 3

Step 4FSC certified forests(standards recognised by IKEA)

Use of solid wood: the “environment scale”of IKEA suppliers

4

FAO model code of forest harvesting

practice(1996 by Dennis P. Dykstra)

http://www.fao.org/docrep/V6530E/V6530E00.htmhttp://www.ifbww.org

Leading international authors such as JK Rowling, Ian Rankin, Günter Grass, Marlene Streeruwitz, Isabel Allende and Andrea De Carlo are just some of the more than 120 writers until now working with Greenpeace to ensure that their future books are printed on 'ancient forest friendly' paper such as recycled and Forest Stewardship Council (FSC) certified paper.

Commitment to print books on FSC certified or TCF re-cycled paper

“Friends of the Forests Writers and Editors”

Greenpeace Campaign:www.greenpeace.org/international/campaigns/forests/greenpeace-book-campaign

Environmental, social &

economicaspects in forestry

Environmentalimpacts

A2. Management standards

• ISO 14001• EU EMAS• SA 8000• Forest Stewardship Council

(FSC)• Programme for the

Endorsement of Forest Certification (PEFC) Schemes

Social aspects

A.3 Accounting and auditing• Environmental and social accounting: use

of indicators• Auditing:

– How � procedures and checklists– Who? �internal/external– Where? � field/desk auditing

http://www.accountability.org.uk/aa1000/default.asp

• AA1000: stakeholders’consultation

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1. stakeholders’ identification2. Stakeholders’ consultation (“consumers’ satisfaction”)

and engagement

B. Socially responsible consumption

1. Reporting2. (Eco) labelling

B.1 Reporting

• Global Reporting Initiative (GRI): reporting methodology

www.globalreporting.org

• EU Ecolabel• National eco-labels• Environmental Product Declaration

(ISO 14025) • Label within the ASEAL

organisation• PEFC• Companies’ branding

B.2 (Eco)labellingInternational Social and EnvironmentalAccreditation and Labelling: an alternative network of standard setting and accreditationorganisations

http://www.isealalliance.org/

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C. Socially responsible investment

1. Compensatory investments 2. Ethical index 3. Ethical finance

C.1 Compensatory investments

www.carbonneutral.com/

www.cyberium.co.uk/carbonneutral.htm

http://servizi.lifegate.it

Rating agencies and Indexes of Social Responsibility

• Dow Jones Sustainability Group Index (DJSGI): about 200 international corporations in 60 different sectors which represent the top 10% of companies with CSR

• Domini 400 Social Index (DSI) (1990): only USA companies not active in tobacco, alcohol, game of chance industries and those with CSR instruments

• Arese Sustainability Performance Indexes (2001): 4 indexes specific for European region, based on profitability, absence of social conflicts, environment protection

C.2 Ethical index

http://www.storaenso.com

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Rating agencies and Social Responsible Indexes (cont.)

• Footsie 4 Good (The Financial Times): tobacco, conventional and nuclear arms production industries, nuclear as well as energy production and uranioproduction industries are excluded; rating on the basis of: UN Human Rights Declaration respect, transparency and collaborationwith stakeholders, management oriented toward SD principles for environment

• Ethibel SGR Rating (European Investments Agency): States are included;

based on UN,OECD, ILO and EU ethical standards

Socially responsible companieshave above-average financial returns

• Stock market social indexes are useful benchmarks for demonstrating the positive impact of social screening on financial performance: the Dow Jones Sustainable Index has grown by 180% since 1993 compared to 125% for the Dow Jones Global Index over the same period.

• Assessing precisely what determines financial return of a socially responsible company is difficult. Research (Industry Week, 15 January 2001) has shown that about one-half of the above-average performance of socially responsible companies can be attributed to their social responsibility while the other half is explained by the performance of their sector (EC Green Paper on CSR)

INAISE (INternational Association of Investors in Social Economy)

• Objectives

• Members

• Activities

To support organisations which invests in companies promoting environment, culture, ethic, with special attention to weakest categories (indigenous people, “borderline people”, women, …)

43 organisations, in 18 countries

• Lobbying on PAs• Monitoring and reporting• Newsletter• International seminars, conferences

C.3 Ethical finance In Italy• Savings can be invested in 4 categories of projects:

�environment (environment protection, organic farming, bioenergies)

� international development cooperation�social cooperation�cultural activities

• Cultural activity, information and communication• Projects’development (EU project management, R&D)• Ethical Funds management • Member of associations/federations of organisations

involved in ethical finance (SEFEA – FEBEA)

A test

• On the basis of the tools presented before, define a checklist (yes/no, hoe, whick, …)

• Select a (forest, timber processing, pulp and paper) company

• From the company’s web site try to derive the information to fill the checklist

• Make a final evauation of the quality and quantity of CSR tools

• Do the same work for another company and compare the results

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Foundations of CSR

1. Command and control response2. Utility based ethics3. Duty based ethics

CSR: why to behave along with ethical principles?

1. Command and controlresponse

Public good are under the responsibility of public authorities

They define rules of the game: the command and control instruments

Companies are delegating to the State any responsibilities in standard setting We (companies)

respect the rules and maximise profits �

society welfare

But sometimes this is risky: we could be asked to account for the environment and some social aspects on a legal basis

See the advent of the concept of:• “responsibility without fault” of the

environmental legislation• “retroactive responsibility”�Millions of Euro in liabilities for past

industrial activities Lesourd and Schilizzi 2001, p. 56

… so in a very competitive market you need more:

Public perception of problems and consumers’preferences are changing

My perception of environmental and social problems as perceived by consumers

GMOs

SFM

C

ertif

icat

ion

CoC

cert

ifica

tion

Tree-freepaper

Tropicaldeforestation

Transport, NOx emission

Recycling vs.incineration

EcoefficiencyLCA

Forest management

Final consumption

Wood working

Wood harvesting

Issues expected to be on the rise

Issues high up

Issues expected to be going down

Forest dieback

fires

Herbicides, pesticidesFLEG(T),

VPA

Water use

Old-growthforests, HCVF

Bio

ener

gy

To get a competitive advantage: • Old instruments

– Natural resources availability– Labour costs– Technology and design– Services

• New instruments: two basic concerns– A social concern in terms of equity or fairness– An ecological concern in terms of ecosystem

integrity, health and stability

2. Utility based ethics

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Benefits of CSR may be found in 4 directions:

• CSR can reduce direct costs(energy, rough materials, time loss in external controls, …)

• CSR can improve productivity of workers (more motivation, low absenteeism, reduced turn-over)

• CSR can reduce management risks (easier access to credit, increased value of the assets for the investors, support by stakeholders, boycott avoidance, …)

• CSR improve the competitive image of the firm

It’s the interest of mycompany to promote CSR

3. Duty based ethics (or deontologism)

While utilitarianism is based on self-centred interest, deontologism is based on the respect of moral rules

I respect some ethical principles because I trust

this is good for the welfare of the society (and my personal well being)

How these motivations are implemented in practice?

Different level of commitments in CSR:

• Opportunistic philanthropy• Strategic philanthropy • Social investment

Ethical behaviour of a company based on

Also indirectstakeholders, with special attention to external ones

Also indirectstakeholders

Direct stakeholders

Stakeholders inclusion

Long-term commitment

Long-term commitment

Sporadic, not always consistent actions

Time dimension of the commitment

Pro-active, comprehensive, holistic, chain oriented approach

Pro-active, but work on single or sectoralobjectives or target(s)

Passive response, one or few aspects, often crisis-oriented behaviour; end-of-pipe approach

CSR management practices

CSA as a social investment

Strategic philanthropy

Opportunistic philanthropy

Opportunistic philanthropy

Strategic philanthropy

CSR as a social investment

time

CSR

practices

Opportunistic philanthropy:Italian State Railways

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Greenpeace protesting at the Italian Ministry for Public Works: Azobe' imported from Liberia through the Oriental Timber Company (responsible – as stated by the UN – of illegal trade of weapons)

November 2001

The risks of not having a serious approach to CSR:

http://www.panto.it

“Green washing”

Greenpeace protesting in 2007 against Kimberly-Clark (Kleenex and Scottex brands) for the unsustainable harvest of primary forests in Canada

Company’s internal problems

• Raw materials use• Energy consumption• Employees’ rights• Working conditions• …

External problems• Demand for green and

protected areas• Wildlife protection• Goods of cultural

significance• Health status of some

sectors of the population (children, elderly persons, … sometimes in developing countries)

• …

Company’s attention & investments Some instruments of philantrophy

�Funding or sponsoring local development project or initiatives by NGO in LDC (research institutions, hospitals, schools, parks and protected area, other social infrastructures)

�Support to the company’s employees in carrying out voluntary activities

�Cause related marketing

�Compensatory investments (Zero C emission)

�…

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Strategic philanthropyBioforest Association

• Since 1998• Initiator: Valcucine SPA• Members (2003): 30

companies (Valcucine, Foppapedretti, AEF, Franke, …)

• Investments: 580,000 €

CSR as a social investment:Sveaskog and AssiDomän

CSR tools: • Sveaskog’s code of conduct;

agreement with WWF to control timber from illegal sources

• Management system (ISO14001, FSC); a joint manager function for environmental and social responsibility has been appointed

• Environmental reporting(EMAS) and social reporting (company’s standards)

• Hunting, fishing, nature protection policies agreed with local, national and international stakeholders

• Philanthropic investments(WWF)

Also SME can be responsible!Raffaele Rigato

www.raffaelerigato.com

CSR tools by Raffaele Rigato� Attention given to the international debate on SFM

practices� Use of certified wood (first Italian member of FSC) or

wood of legal origin (declaration of origin requested to the suppliers)

� Wood material from community organizations in developing countries

� Support to the development of wood processing industry in developing countries

� Good level of information to the public � web site� Efficient design of furniture design (high quality, long lasting

products made also with recycled wood)

� No treated wood; only natural wood preservative� Active no discrimination policy related to the employees

Which connections between CSR motivations andfoundations of CSR

CSR zero stage

CSR as a social

investment

Strategic philanthropy

Opportunisticsphilanthropy

Duty based ethics

Utility basedethics

Commandand controlresponse

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“My company is managing social and environmental assets in a responsible way”• How to guarantee that you are really doing what you

declare to do?• How to demonstrate your real commitments, activities,

impacts?

First claim certification

The correct definition:“Conformity declaration”

firm standard

No external control: credibility?

You can cheat one for ever;you can cheat all people once;

but you cannot cheat all people for ever

Un-correct environmental claims:

NO TREES HAVE BEEN CUT TO MAKE THIS PRODUCT

FROM 100% RECYCLED PAPER

����� ����� ���� ��������������������������� ����� � ������� ����� ����� � ����� ����� ��� � ����Tropical-free product

100% wood from rubber tree

… clients and consumers are not silly Second claim certification

The correct definition:“Conformity assestment”

firm standardControl agency

Credibility = f (relation enterprise/client)

With vested, financial interestsin common with the firm

An exampleGlobal Witness (NGO), financed by the UK government, making a control to forest concessions

http://www.globalwitness.org/

Third-claim certificationThe correct certification process

firm standardCertification agency

Accreditationagency

Certification and accreditation system

The best instrument, not a perfect one!

EN ISO 45000 Standardsand ISO/IEC guidelines

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Process certification

Product certification

Product and process certification

Firm organization:• Contracts• Information• Training• Quality control• …

Product A

Product B

Product C

Accreditor and certifyingorganisations

Product

Firm

NationalAccrediting

Organisation

(Inter)NationalAccrediting

Organisation

Certificationbody

Certificationbody

Certificationbody

Certificationbody

Certificationbody

Certificationbody

2 “families/groups”:

• Insurance and bank companies (DNV, SGS, …)

• Technical organisations (TUV, Icilia, Soil Association, Skal, …)

IAFInternational

Accreditation Forum

EAEuropean Cooperation

for Accreditation

ILACInternational Laboratory

Accreditation Cooperation

IASInternational

Accreditation Services

United KingdomAccreditationService (UKAS)

…

www.ukas.com

Dubai AccreditationCenter (DAC)

www.dac.gov.ae

ItalianSINCERT

www.sincert.com

…

International Social and EnvironmentalAccreditation and Labelling: un’altro organismo internazionale di raccordo

http://www.isealalliance.org/

Italy

An example

UKASSKAL

FSC

IFOAM

TRADASGS

Accreditation

Certification

International Accreditation Forum ISEAL

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Some final considerations

• Without a strong role of civil society (NGOs, consumers), CSR is only a rather limited instrument

• Information and networking are the most powerful instruments to improve civil society awareness � pressure on the State � increased accountability by companies

CSRCorporate Social Responsabiliy

Society - consumers

Political power