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The risk intelligent approach

to corporate responsibility &

sustainability

Risk Intelligence SeriesIssue No. 11


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ii

The risk intelligent approach to

corporate responsibility & sustainability

As used in this document, "Deloitte" means Deloitte & Touche LLP, a subsidiary o Deloitte LLP. Please see www.deloitte.com/us/about or a detailed description o the legal structure o

Deloitte LLP and its subsidiaries.

Disclaimer

These materials and the inormation contained herein are provided by Deloitte Touche Tohmatsu and are intended to provide general inormation on a particular subject or subjects and

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PreaceThe publication represents the 11th installment in a series on Risk Intelligence. Theconcepts and viewpoints herein build upon those discussed in the rst whitepaper inthe series, The Risk Intelligent Enterprise: ERM Done Right, as well as subsequenttitles. You may access the previous whitepapers in the series ree o charge atwww.deloitte.com/RiskIntelligence.

Unettered communication is a key characteristic o the Risk Intelligent Enterprise.Consider sharing this whitepaper with the other executives, board members, and keymanagers at your company. The issues outlined herein will serve as a starting pointor the crucial dialogue on raising your companys Risk Intelligence while enhancingyour approach to corporate responsibility and sustainability.
http://www.deloitte.com/RiskIntelligencehttp://www.deloitte.com/RiskIntelligence


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Table o contentsPreace ii

The risk intelligent approach tocorporate responsibility & sustainability 1

The new competitive landscape 2

Stepping towards risk intelligence 4

A clear destination 10Contacts 13

Endnotes 14

Sidebars

The CR&S continuum 3

Defning CR&S 4

Characteristics o the risk intelligent enterprise 5

The quintessential CR&S issue 6

Educate responsibly 8

A special case: greenhouse gas emissions 10

The righteous right 11

Why assure? 11

CR&S standards, guidelines, and rameworks 12


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Youll see a split palette in North America verdant tones inCanada and hazy browns in the United States and Mexico.Asia will show variable tints, while Eastern Europe, Arica, andSouth America, with a ew exceptions, will lack emerald hues.

Zoom in closer, though, and youll observe signicantvariabilities in CR&S perormance that dey geographicalgroupings. A Kenyan contractor may score high marksor responsible and sustainable practices, while an Englishenterprise may prove lacking. Indeed, though certainpredictions about CR&S perormance can be made based ongeography, industry, market cap, and regulatory environment,in the end, the predilections o a companys executive team,board, and stakeholders trump other considerations.

In other words, you dont need to be a cartographer to see thatCR&S is all over the map.1

I you dont require a cartographer to map CR&S trends,neither do you need a seismologist to detect the tectonicshits taking place in the world o business. The Richter needletrembles in disparate realms: energy and climate; governmentand politics; regulation and taxation; pollution and naturalresources; population, labor, and human rights; war andterrorism; trade and nance; healthcare and nutrition. Thestrands o interconnectivity that bind these topics, once looselywoven i not largely invisible, are becoming increasingly taut,

and the implications are only just beginning to be perceived.Risks are multiplying, combining in new congurations, andcascading in ways rarely envisioned.

How do you make sense o this messy amalgamation? Howcan you determine the potential impact on your company oall these unknowns and intangibles? Well, to divine the uture,you could pore over producer and commodity price indices,scrutinize interest rates and share price trends, and examinelabor and wage statistics.

Or you could just order yoursel a beer.

Thats right a beer. The bar tab at your local pub might justtell you more about the interlocking CR&S trends aectingthe business community than any o the metrics commonlyemployed in boardrooms, think tanks, legislatures, and academia.



Color code a world map or corporate responsibility andsustainability (CR&S), and youll fnd lush greens in WesternEurope and Oceania.


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Consider: The cost o a liter o beer at the 2007 Oktoberest inMunich increased by 5.5% over the year prior.2 A wide array oseemingly unrelated actors contributed to the rise. Here are aew o the interplays:

Expensive Beer, Scene 1: Climate change alters worldwideweather patterns. Lengthy drought in Australia and heavy rainsin Europe depress barley production and spur spike in barleyprices.3 Higher cost o barley, an essential component o thebrewing process, leads to higher beer prices.

Expensive Beer, Scene 2: Biouel is promoted as a panacea ormyriad ills. Proponents claim the energy source will (1) reducedependence on oil pipelines and shipping channels vulnerableto war and terrorism; (2) counter the rise o the petro-stateand the U.S. and E.U.s heavy dependency on OPEC supplies;(3) potentially reduce global warming and help meet the

need or more environmentally-riendly energy. These actorsprovoke strong demand or biouels, which, combined withgovernmental incentives, encourages armers to plant cropssuch as rapeseed and corn (which can be turned into ethanolor bio-diesel) rather than barley.4 Decreased supply o barleyleads to increased price and raises the cost o a pint o ale.

Expensive Beer, Scene 3: Diets in many emerging countriesevolve toward a U.S.-style pattern that emphasizes meat andanimal products.5 Meat consumption rises. Barley productionis diverted rom malting barley (used or beer making) toeed barley (used to atten livestock).6 Reduced availability omalting barely leads to increased cost or brewers, which ispassed along to the pub patron.

Thus, myriad interconnected actors orce beer drinkers todig deeper into their wallets, including climate, agriculture,war, terror, politics, energy, natural resources, transportation,taxation, diet, nutrition, population, and cultural trends.

And people crying into their beer is not the only negativeoutcome. The diversion o North American ood crops tobiouel also causes a spike in the cost o corn, which aectsconsumers in Mexico or whom this cereal grass is a diet staple;many take to the streets in protest.7

In sum, a well-meaning objective developing biouels spawns an unortunate and wholly unanticipated outcome

or beer drinkers and corn consumers alike.8

O course, none o these examples provides straight-linescenarios. Some associations may be tangential. Otherinfuences may come into play. And certain actors may be indispute. For example, droughts and deluges have occurredthroughout history; can the latest incidents be denitively tiedto climate change? (Or, or that matter, is our climate trulychanging? Some observers, albeit a minority, contend there isno such thing as global warming.)

But the point isnt to demonstrate direct cause and eect. Rather,it is to show that an intricate web o links, risks, and opportunities oten unanticipated or counterintuitive can lead toundesired or unexpected results. And in business, the undesiredcan be detrimental; and the unexpected, potentially lethal.

The new competitive landscapeLike it or not, acknowledge it or ignore it, this is the newcompetitive landscape in which business will operate in the21st century. The interlinking actors cited above, alongwith many others that all under the rubric o corporateresponsibility and sustainability, will be dening issues in theyears ahead. These actors will contribute to value creation andvalue destruction. They will impact the war or talent and yourability to compete. They will demand your attention, occupy

your time, and infuence every acet o your business and thato your competitors.

Risk intelligent executives know that both threats andopportunities will present themselves in this new era ocorporate responsibility and sustainability. These businessleaders plan not to merely survive the rising ocean ochange, but to sail purposeully through it. They realize thatthe circumstances are not analogous to developing a newproduct or entering an untested market or ending o a eistycompetitor. Rather, these executives see the situation clearlyor what it is: an entirely new environment in which they mustcompete or their own sustainability.


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Every organization can be plotted along a CR&Scontinuum, on a scale ranging rom seemingly

no socially redeemable activities whatsoever

at one end to highly efcient and eectual

programs at the other.

In Deloitte Touche Tohmatsus experience, most companiesare clustered around the middle: many are well-meaning butsometimes ineectual; others are driven more by appearancethan substance; ew excel unequivocally or ail totally.

Where does your company stand among the modelsdescribed below?

Charity Driven: The CR&S activities o some organizations canbe summarized in a single word charity. For decades, i notgenerations, these companies have bestowed generous gitsupon non-governmental organizations (NGOs) dedicated toeducating children, eradicating disease, beautiying blight, andother worthy causes.

Deloittes take: Charity is, o course, noble and commendableand should be encouraged. But i charitable giving representsthe entirety o your CR&S program, your initiative is, inDeloittes opinion, neither maximizing the potential impact nor

generating the possible returns that it could i done in concertwith other CR&S initiatives.

Report Centered: For other business executives, corporateresponsibility and sustainability revolves around their annualCR&S report. Knowing that the report is the public aceo their CR&S programs and activities, the company devotessignicant resources to documentation and presentation.

Deloittes take: There is, o course, a compelling need orreporting on CR&S activities. But nonfnancial reporting isstill in an early stage o development, and certain inherentlimitations may diminish the value o the report. Consider:

No single, widely accepted standard exists or measuringthe various elements o a CR&S report, making meaningulcomparisons between companies difcult, i not impossible.

In most locales, reporting is voluntary, and inormationcan be included or omitted as desired. This may result ina biased report.

Verifcation is inconsistent, as relatively ew companies gettheir CR&S reports independently audited. This can, to someobservers, call into question the validity o the reporting.

These limitations should not lead to the conclusion that CR&Sreporting should be abandoned. Quite the contrary. Untilcomparable standards, defnitions, and measurements are inplace to uniy CR&S reporting, companies will need to takeit upon themselves to produce reports that serve the needso its users and that simply and clearly describe the ongoingimplementation and results o a well-thought-out and-executed strategic CR&S plan.

Active and Well-Intentioned: Another example may beound at companies that have amassed a varied and lengthylist o CR&S credentials. The organization employs a diverseworkorce; supports NGOs through grants and donations;collects toys and ood or the needy; recycles paper at theoce; and insists on socially responsible partners and suppliers.Well-respected in the community and perceived as a rolemodel or CR&S, the company rarely says no to a undingrequest or turns its back on a cause.

Deloittes take: This approach, while certainly well-meaningand earnest, can be scattershot. Some o the activities maybe low value not to the benefciaries, o course, but to thebeneactor. In some cases, these initiatives may do little toimprove the long-term ortunes o the company.

Disconnected and Minimalistic: Some companies perceiveCR&S as essentially a mandated chore. They reliably meet

all regulatory requirements but dont necessarily place theircompliance activities into a larger context. They dutiullyrespond to requests or reporting on, say, carbon usage andgreenhouse gas emissions, yet they dont tie these disclosuresto an active program o meaningul reduction. Thesecompanies are not attempting to evade, per se; rather, theyare so intently ocused on their short-term business goals thatlong-term sustainability is unintentionally ignored.

Deloittes take: Driving shareholder value can be done alonga green pathway. Companies dont need to abandon businesssuccess to embrace CR&S. Properly approached, above-averageproftability and sustainable activities can go hand in hand.

Integrated and Strategic: These companies conduct theirCR&S activities with a greater purpose in mind. They develop acareully orchestrated corporate responsibility and sustainabilityeort, aligned and integrated with existing strategic initiatives,and coordinated with an intelligent approach toward therelated risks and rewards.

Deloittes take: Through this approach, the acts o giving,conserving, and volunteering exist in harmony, aligned withthe companys core business and strategy. Benefcial impactto the community can be enhanced; ROI or the companycan be attained.

The CR&S continuum


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Deloitte contends that the topic o corporate responsibility andsustainability should be on the minds and agendas o everyexecutive and board at companies across the world. This isnot an assertion derived rom morally righteous reasoning.Altruism may be noble, but it is an insucient rationale or

business (as opposed to NGOs and governments). Rather,Deloitte sees corporate responsibility and sustainability as amore undamental imperative: Those companies that ail toproactively address CR&S may nd themselves on the path tocorporate extinction.

To prepare or the coming sea change, ponder a ew o thesequestions:

Are you ready to start paying or what was ormerlyree? What will be the impact o a carbon tax on yourorganization? What happens as water supplies evaporate andcosts surge? What will be the impact o accounting or theseitems on your balance sheet and income statement?

Have you anticipated the eect o shiting demographicson your business? How will trends in aging, education, andimmigration shape your company in the years ahead? How willthese developments impact your customer base? Do you havea people strategy? How are you going to retain your keyemployees?

Do you have a contingency plan or responding toactivists or NGOs who may target your company?Can you withstand a barrage o bad media? Are you takinginto account the power o the Internet in terms o distributinginormation (and disinormation), mobilizing protests, andorming public opinion? Are you in a position to harness thatpower to your advantage?

How will you anticipate your stakeholders needs? Howwill you maximize your shareholders investment? How can youadd value to the community? And, how can you accomplish allthis while at the same time avoiding confict and setbacks?

These questions, o course, represent just the tip o the(melting) iceberg. Successully addressing these and myriadother issues constitute the challenge that is CR&S.

Defning CR&SCompanies addressing economic, social, and

environmental issues do so using various

nomenclature, including:

Corporate social responsibility (most widely used)

Corporate responsibility

Sustainability

Corporate responsibility & sustainability

Enterprise sustainability

Green or Greening

Climate change

Eco-riendly

Corporate citizenship

Conservation

Environmental and social responsibility

Social responsibility

While the terms vary, they all generally reer to thesame set o activities: strategically managing the social,environmental, and ethical risks and opportunities obusiness.

Stepping towards risk intelligenceDeloitte contends that the CR&S challenge can be metthrough the principles o Risk Intelligence our philosophyon eective risk management. Many characteristics distinguishThe Risk Intelligent Enterprise (see box on page 5)9 but onetrait warrants additional emphasis: risk taking or reward. InDeloittes view, companies that ocus solely on risk avoidance(the traditional realm o risk management) may survive butrarely thrive. Instead, companies should take a proactiveapproach to CR&S, one that sees not just peril but opportunity.

A Risk Intelligent approach to sustainability can yield benetsthat extend ar beyond the eel good aspects o charity-driven or green-ocused eorts. A strategically drivenCR&S program can help improve operations, attract talent,promote positive public relations, enhance transparency and


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accountability, streamline regulatory compliance, inspire supplychain partners, draw investors, energize stakeholders, heightencompetitiveness, and, ultimately, boost the bottom line.

Ambitious goals? Unquestionably. And the benets wontfourish instantaneously or simultaneously. Some may bemeasured in months or quarters; others may be drawn out overseveral years or even decades. But the Risk Intelligent approachoutlined below may make the steps more understandable,manageable, and attainable.

Step 1: Understand the present

Evaluate the regulatory climate.

Conduct a regulatory and state o the world review. Whatare the trends and orecasts or CR&S legislation? Are newenvironment, health, labor, and workplace saety regulations onthe horizon? What impact might they have on your business?

Benchmark the feld.

What are your major competitors doing right now in terms osustainability? Do they have innovative programs in place? Arethey ahead o your organization? Are they gaining competitiveadvantage? Create a catalogue o leading practices and

creative initiatives that may be adopted.

Survey stakeholders.

Find out what is important to your customers, suppliers,employees, lenders, insurers, NGOs, and, o course,shareholders. Survey your board, your management team,and your business partners. Query analysts and consultants,your law rm, and your accountant. Troll your upstreamand downstream supply chain. What are the values o thesestakeholders? What issues do they care about? Aggregate andanalyze their responses.

Characteristics o

the risk intelligententerpriseRisk Intelligent Enterprises are companies

that have attained an advanced state o

risk management capabilities. Many

characteristics defne such companies. A

Risk Intelligent Enterprise:

Develops Full-Spectrum Vision: Eectively assesses andmanages risk across divisions, departments, companies,and geographies.

Bridges Silos: Acknowledges the need or riskspecialization deep knowledge o specic risks andresponses but constructs bridges between risk silos.

Speaks a Common Language: Develops common riskterminology (so that everyone speaks the same language),and adopts common metrics (so that everyone measuresrisk in a comparable manner).

Assesses Impact: Realizes that, with a nearly innite

number o risks, planning or them all is impractical, i notimpossible. Focuses on the nite impacts that could resultrom multiple threats.

Weighs Vulnerability:Augments the conventionalrisk management emphasis on probability by placingsignicant weight on vulnerability, since risk at theextremes is oten the deadliest.

Considers Risk Interaction: Adopts an approachthat does not solely consider single risk events, but alsotakes into account risk scenarios and the interactiono multiple risks.

Allocates Resources Appropriately: Conducts acomprehensive risk assessment and then prioritizes andocuses eorts on the areas o greatest risk.

Cultivates Risk Consciousness: Considers riskmanagement an organization-wide responsibility, part othe everyday operations o the company and the routineduties o its people.

Pursues Risk Taking or Reward: Seeks not only riskmitigation, but also pursues risk taking as a means tovalue creation.


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The quintessential

CR&S issueFor many, climate change is the quintessential CR&S issue,topping agendas in legislative chambers and corporateboardrooms across the world. Former U.S. Vice PresidentAl Gore may have raised awareness, but or manyindustries, climate change was on the radar screen longbeore An Inconvenient Truth was on the video screen.

Planning an eective climate change strategy is becomingessential or executives in many industries. Climate changepresents a host o uncertainties, including:

Regulatory uncertainty: The nal nature and extent oindividual country government limits on greenhouse gas(GHG) emissions and their intensity is still unknown.

Technological uncertainty: There are currently nocommercially available technologies to adequatelymitigate carbon emissions. No one knows how asttechnology will move or what the cost o any advancesmight be.

Carbon pricing: Even companies that dont participateactively in traded markets will be aected by the price ocarbon because it will impact the price o energy.

Physical environment: Scientists are identiying a largenumber o potential changes in the physical environmentthat may result rom climate change, such as moreintense storms and rising water levels.

Uncertainty, o course, presents a prime breeding groundor risk. Thus, it is imperative to apply the principles o RiskIntelligence to the issue o climate change. One possibleapproach includes scenario planning as a tool that canhelp address these uncertainties, and allow businesses toprepare or the most plausible uture situations.For more inormation on scenario planning, download TheRisk Intelligent Enterprise: ERM Done Rightatwww.deloitte.com/RiskIntelligence.

Dont think o this exercise as a solitary event. Rather, two-way communications with stakeholders should become asroutine as paying your vendors and your employees. Consideremulating the practices o Banco Bilbao Vizcaya ArgentariaS.A. (BBVA), a nancial services company headquarteredin Spain. To maintain a ree-fowing dialogue with itsstakeholders, BBVA has established multiple systems orlistening and communicating, and has created tools ordetecting, measuring, and assessing expectations. For example,

the company established a shareholders management unit;created a department o investor relations; encouragesbroad participation in its annual general meeting; publishesa magazine addressing stakeholder issues; conducts periodic

surveys on stakeholder expectations and perceptions; anddeveloped a standard report to provide the CR&S committeewith regular (not just annual) inormation on stakeholderpriorities and perceptions.

Take inventory.

Virtually every company has activities and programs that allunder the CR&S heading. Take inventory o them all. O course,the larger your organization, the more challenging your task,but a comprehensive accounting is undamental to all thatollows. I your organization has multiple divisions and ar-fungoperations, it may pay to appoint a CR&S champion at eachoutpost, who can serve as a point person or the initiative. Theinventory process oten brings a major ringe benet: It getsemployees excited about corporate responsibility and eager totake part in the eort.

Dont neglect the business o business.

Failing enterprises rarely make a lasting impact. Dont letthe enthusiasm surrounding your CR&S initiative distractyou rom your primary responsibility: building value orshareholders. As Jane Nelson, director o the CSR Initiative atHarvard Universitys Kennedy School o Government, told TheEconomist, the greatest business contribution to society iscreating wealth.10

Step 2: Envision the uture

I you are a CR&S idealist, your rst act should be to dispel anynotions o grandeur. Your actions are not going to save the world.

Thats not to say you cant have an impact. In act, yourcompany can make a proound dierence, i it acts in astrategically ocused manner. But you alone cant solve all theplanets problems.

So ask yoursel: What do you want to be known or? What areyour companys strengths? In what realm is your organizationbest positioned to make a mark? What is your organizationslong-term vision? What are your key growth strategies?

UPS, the global package delivery enterprise, centered one oits CR&S initiatives on delivery route eciency. Using computermodeling to nd the optimal path between points A and B, thecompany cut energy use, reduced carbon emissions, increasedsaety, and generated hard-dollar savings. (See sidebar, Therighteous right, on page 11.)
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Corporate responsibility and

sustainability is not a public

relations initiative

Banco Santander, the largest bank in Spain, established anextensive micro-credit program in Latin America, providing low-cost business loans to armers, emale entrepreneurs, and othergroups, and sponsoring workshops or the training o microbusinesses.

Shiseido, a Japanese cosmetic company, holds ree beautyseminars or various groups o disadvantaged people, includinghospital patients, people with skin disorders, and the elderly.

In these cases, the CR&S activities were inextricably integratedwith the companys core business strategies.

The point cannot be overemphasized: A successul CR&Sprogram will reinorce the organizations long-term vision andstrategies.

This principle can be applied to any business. A publishingcompany, or example, might make literacy a major charitablecause; could require its paper suppliers to use recycled pulp;could deploy its employees to libraries and schools; coulddonate books to disadvantaged youth; could promote creativewriting contests with grants and scholarships as prizes;could develop electronic publishing capabilities to reduce its

dependency on paper and ink. All o these activities wouldmake sense in terms o supporting the core business andexisting strategies, would boost the standing o the companyin the community, would demonstrate responsible andsustainable practices, and could positively impact the bottomline. Conversely, sending employees to clean city parks orpaint classroom walls may make signicantly less sense rom astrategic standpoint.

So ask yoursel (and your team): What will be ourcompanys legacy?

Step 3: Plan the journey

With the oundational steps in place, you can now determinewhat you want to accomplish with your CR&S program. Dontseparate CR&S rom your overall business strategies; theyshould be integrated, complementary, and mutually supportive.Consider amending your corporate mission statement toinclude CR&S.

At this critical stage, a ew points should be kept in mind. One,remember that corporate responsibility and sustainability isnot a public relations initiative; it should be much more thangenerating an annual report. Rather, its about acting in aresponsible, sustainable and strategic manner and thenreporting on the successes and the challenges.

Two, prioritize your CR&S issues. You cannot deal with themall over the short run. Decide what your objectives are. Whatdo you want your CR&S program to accomplish this year, nextyear, in ve years?

Three, conduct a gap analysis. You have catalogued your ownCR&S activities; you know what peers and competitors aredoing; you understand the concerns o your stakeholders;youve surveyed the regulatory landscape; and youveestablished goals. Now you can document the gaps betweenwhere you are and where you want to be; between yourorganization and your competitors; between your present anduture states.

Four, perorm a Risk Intelligent scenario planning exercise:What is the risk o inaction? What are the opportunities oraction? What problems and issues might arise that could

thwart your objectives? Consider using tools such as the RiskIntelligence Map11 to spur discussion and creative thinkingaround the potential risks that may threaten your CR&Sobjectives. Dont think solely about your CR&S program in termso lessening negative impact, such as reducing your carbonootprint. Think also about risk taking or reward aboutinnovation, about nding solutions or environmental andsustainability issues, about making lie easier or your customers.In other words, as you develop your strategy, look at thesolution and income side, not just the problem and cost side.


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Five, take a global perspective. Corporate responsibility extendsbeyond national boundaries more than many other initiatives.Even or companies that serve a local or regional customerbase, many parts o their business can still have global

components, including their supply chain and any oshore oroutsourcing arrangements.12

Step 4: Plan and build

Assess your resource requirements or attaining your CR&Sobjectives. Budget should not be your rst consideration. Aneective CR&S program is as much about changing attitudesand behavior as it is about allocating euros, pesos, and yen.

Sometimes the human resources component o CR&S getsoverlooked. One common mistake is to drop the initiativeinto the lap o middle management. This mentality thatsomeone else is taking care o it should be avoided. Pull

oversight o CR&S back up to the executive level. Demonstrateleadership and commitment to make good things happen. Youractions help to set the tone and establish the culture. Set highexpectations and live by them.

Consider the roles and responsibilities required to attain yourCR&S objectives. You will be asking employees to take on newduties; training and ongoing support should accompany yourrequest. (See sidebar, Educate responsibly, on this page.)

Where do your strengths lie? What

will be your companys legacy?

One way to get employees behind a CR&S initiative is decidedlynon-altruistic in nature: Build it into compensation plans andperormance reviews. Money remains a great motivator, evenin a realm where idealism appears to be a primary infuence.

Your action plan should also incorporate accounting and taxissues. Many countries and regions oer grants and incentivesor work related to energy alternatives, climate change, labortraining, and green products. Where your company perormsits activities can make a measurable dierence. To addressthese opportunities and challenges, bring your operations,nance, tax, accounting, and human resources people together

to discuss strategy and make decisions.

Additionally, think about non-traditional collaborationopportunities. Progressive companies collaborate with a muchbroader group o stakeholders than has traditionally beenthe case. For example, a leading beverage company workswith NGOs and scientic/academic communities to innovatesustainable products, packaging, and processes. It surveysconsumers to understand usage and disposal patterns, withresults incorporated into sustainable product designs. And thecompany works with government bodies to develop ecientrecycling inrastructures and to promote proper incentives orconsumers and businesses to comply with regulations.

Consider starting your initiative with compliance issues: Takea sustainable, proactive approach to the rules and regulationsthat your company is subject to. Comply not just with theletter o the law, but with the spirit. Investigate and anticipate

upcoming laws and regulations that may impact your business.Find eciencies in integrated compliance activities.

Next, attend to ethical issues. Identiy those areas where socialmores come into play. Is an ethical culture at your companynurtured and nourished? Does your company operate in anygray areas? I so, how can they be claried?

Once these basic areas are addressed, consider areas oinnovation and intelligent risk taking or reward. Move beyondcompliance and ethics and into the realm o what is good orsociety and benecial to your business.

Educate responsiblyYour action plan will need an educational component,because or employees to thrive in the CR&S era, new skillswill be required. Consider, or example, the hypotheticalcase o an industrial acilities director. His basic jobdescription had remained the same or decades; he wassimply ordered to keep his people on task and make thecompany protable. Today, change is in the air. He (or, justas likely today, she) is being told to work with the localcommunity; to meet with neighbors, unions, emergencypersonnel, and politicians; to attend meetings and perormcommunity outreach. But many employees do not have

the skills and training to engage in the dialogue, tocommunicate and integrate with the community, to dealwith conficts, emotion, and the unknown. Education isrequired to bridge this gap.

Step 5: Execute

Take your time. Dont try to leap-rog to the nish line. Instead,take measured steps.

As you execute your plan, develop governance policies andprocedures related to the implementation. These will providevaluable reerence points as you move along in the process.

Step 6: Review and revise

To keep your CR&S program on track, you need to monitoryour progress and assess your success. This means developingways to measure your activities and compare them to yourgoals. Use hard data whenever possible: calculate hours,currency, units, and tons rather than anecdotes, impressions,eelings, and goodwill. Be fexible enough to modiy your plansor change course as the situation dictates. Utilize eedbackrom stakeholders to assess course adjustments to your plans.


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Step 7: Report and communicate

Ater working through the previous steps, its time to take aresh look at your CR&S report.

I you ollowed the recommendations above, you may nd yourold report barely recognizable. Items that seemed importantthen may appear trivial now. Your retooled CR&S program willlikely lead to a signicantly revamped report.

What standard should you use to prepare your report?Currently, a variety o reporting standards exist, each with itsown strengths and weaknesses. (See sidebar,CR&S reportingstandards, guidelines, and rameworks, on page 12.)Although Deloitte sees a growing consensus on the issue, aso today, no gold standard exists or CR&S reporting. Thus,you should work with your board and advisors to determinewhether an existing template, a customized report, or a hybrid

will best serve your needs and those o your stakeholders.

Some companies may begin reporting even beore theyhave all their systems perected, either because they have nochoice due to regulatory requirements, or because they usetransparency as a driver or change.

Step 8: Assure (internally)

The review and revise process described in step 6 should not bea once and done exercise. The metrics that you developed

to monitor your progress should be placed into regularuse. Deploy these same tools to veriy the data and claimscontained in your CR&S report.

Measurement o nonnancial data is unquestionably dicult,but is a process worth engaging in. To abet the process,consider tapping internal resources. For example, your internalaudit group possesses expertise in business process analysis;nancial, operational, compliance, and inormation technologycontrol testing; and risk management, making them well-positioned or a consulting and assessment role in your CR&Sprogram. Similarly, your legal department, environmentalhealth and saety group, and human resources division allharbor capabilities that can be drawn upon.

O course, some areas o your CR&S program will requireentirely new skill sets. For example, deeply technical aspects otopics like greenhouse gases will require engineering skills thatmay have to be developed or recruited.

Step 9: Assure (externally)

In most countries, a publicly listed company is required topublish periodic nancial statements that include independentassurance. The practice o providing this objective vericationo nancial data is so well established that its hard to imagineproducing a nancial report without it. Yet the practice isrelatively new, rst mandated less than 100 years ago.

Today, CR&S reporting is in a nascent state not unlike thato nancial reporting a century earlier. The nonnancial datathat makes up a typical CR&S report carries no requirementor independent assurance. Companies are, or the most part,ree to include whatever inormation they wish, employingany metrics they desire. This latitude may simpliy reportpreparation, but it does not necessarily enhance credibility.

As such, Deloitte recommends that once your company reachesa certain level o maturity in its CR&S program (i.e., once youhave completed the steps outlined above), you obtain outsideassurance o your CR&S assertions. Doing so will not only

improve the reliability o your report, but will also put youahead o the curve. Deloitte expects that within a decade,independent assurance o CR&S reporting will be mandatory inmany jurisdictions. (See sidebar, Why assure?, on page 11.)

You may also want to consider phasing in your CR&S assuranceactivities over time. Using a gradual, step-by-step approach,you might test only a ew aspects o reported inormation inyear one, and then extend the assurance process until youreach ull coverage over the course o several years.


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0



A special case:

greenhouse gasemissionsWhen it comes to getting third-party assurance ongreenhouse gas (GHG) emissions data, the story changesa bit. GHG emissions data are oten used by nancialand non-nancial stakeholders in their decision making,and all the risks associated with inaccurate reporting oother CR&S-related data still apply. However, becausethis data may also be used to both determine compliancewith regulations and to underpin trading schemes in

carbon markets, there are additional nancial, litigation,regulatory, and reputation risks, such as the risk o penaltypayments, the risk o unnecessary oset purchases, and aneven greater litigation risk.

Recognizing the heightened risk prole o GHG emissionsreporting, many o the carbon markets that rely on theaccurate reporting o such data, including the EuropeanEmissions Trading System (EU-ETS) and the Kyoto osetmarkets, mandate third-party verication.13

Some organizations obtain a measure o assurance throughindependent stakeholder council reports. Such reporting is

valuable but may be complemented by independent externalassurance. The stakeholder report can help you see issues in adierent light by challenging whether you are really doingenough to be considered sustainable. At the same time,external assurance can provide greater condence that theunderlying report data is reasonably accurate, appropriatelygathered, and properly summarized, in keeping with thedeclared standard or denition being applied by the company.

A clear destinationA CR&S eort can be daunting. It can involve multiple businessunctions, the supply chain, human rights, the environmentand climate change, labor practices, and much more. To handleit eectively, you need a process. You must prioritize and tacklethe most important and undamental issues rst. And you mustbe realistic, with a clear-headed understanding o what youare acing. In most cases, it will take two to ve years to makesignicant headway. Nonetheless, its an essential journey.Failure to address the threats and opportunities presented byCR&S may impact the very sustainability o your organization.

Many companies already have pieces o a CR&S programin place, some quite sophisticated. These eorts need notbe abandoned, but rather can be integrated into your newstrategic blueprint.

For some, not every step described herein will need to betaken, but most should be considered. Rethink your approachto CR&S starting with the undamental questions Where doour strengths lie? What will be my companys legacy?

Get those answers right, and the rest should ollow naturally.You need to be true to your corporate roots. Your CR&Sinitiative should refect the identity o your company. It shouldhave strong ties to your business strategy. It should reinorceyour company and your brand. And it should inspire yourstakeholders.

The world awaits. Its time to mount the bicycle and ride. Butpedal with purpose and direction. Your CR&S program shouldnot be all over the map, but must have a clear destination inmind.


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The righteous rightWhen you are in the business o delivering more than 15

million packages a day, you tend to think a lot about how youare getting them rom Point A to Point B. For United ParcelService (UPS), getting this process right wasnt solely aboutimproving service, reducing costs, promoting worker saety, orminimizing their impact on the environment it was about allthose things.

Known or its logistical savvy and almost military-like approachto optimization, UPS invests substantial research into what theyterm, package fow technologies. This suite o technologies,which includes both proprietary routing sotware and a varietyo hardware devices, is used to reduce the time and eortrequired or package handling on the ground, including theroutes that drivers take as they make their rounds.

The routes created with this proprietary sotware have adistinguishing eature: Avoid let turns whenever possible.Why? According to UPS, let turns:

Waste both time and uel, due to the time spent idling;

Contribute to a higher accident rate.

UPS reports that the right turn approach, togetherwith other optimizations produced by their package fowtechnologies, trimmed nearly 30 million miles rom their totalnumber o delivery miles in 2007. That means UPS also savedroughly 3 million gallons o uel, reducing emissions by over

32,000 metric tons o CO2.

UPS provides an example o how a company can draw ontheir core competencies in this case, optimizing networks to develop and implement strategies that accomplish bothnancial and corporate responsibility and sustainability goals.

Getting it right wasnt solely

about improving service, reducing

costs, promoting worker saety,or minimizing impact on the

environment it was about all

those things.

Why assure?Its not mandated. It exposes you to outside scrutiny. It costs

time and money. So why would anyone have their CR&Sreport audited?

Look a little closer and youll nd the rationale compelling:Companies seek external assurance or their CR&S reports tobuild trust and to reduce risk.

Build trust. External verication o CR&S disclosures givesan added level o comort to nancial stakeholders. Morethan 10% o U.S. investment assets under proessionalmanagement are involved in socially responsible investing.14A 2005 study ound that a strong majority o nancialstakeholders (71%) believe that CR&S reports should beveried by a proessional assurance or verication body.15

The same study suggests that such verications are alsoimportant to NGOs (59%), academics (58%), andemployees (46%).16

Reduce Risk. What is the impact to an organization isomething disclosed in a CR&S report is later discovered tobe inaccurate? The answer to that question depends on amyriad o actors, including (but not limited to) what thatsomething is, the magnitude o the error, whether or notinvestments were made on the basis o the disclosure, howimportant engaged stakeholders nd the something to be,and real or imagined intent. Seeking and receiving externalassurance or the content o ones CR&S report can reduce the

risk o inaccurate reporting.

Furthermore, opening ones organization to external scrutinycan galvanize management in its implementation o qualityCR&S policies, processes, and reporting.


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CR&S standards, guidelines, and rameworksAs with any emerging business practice, the standards and processes or reporting and assuring CR&S inormation are stillevolving. Diverse and sometimes competing groups with diering objectives and approaches have tackled the task odeveloping the denitive (or at least, they hope, a widely adopted) ramework. The ollowing list is ar rom comprehensive butcovers the more commonly adopted guidelines and rameworks.

Standard What it is Comments

Global Reporting InitiativesSustainability ReportingGuidelines

Framework or individual organizationsto use in the voluntary preparation oa CR&S report

q Commonly reerred to as simply GRI

q Covers a wide range o economic,social, and environmental disclosures

q Includes sector supplements

q Used by approximately 21% oorganizations who issued a CR&Sreport in 200717

Carbon Disclosure Project Nonprot organization that collectsand analyzes survey data ongreenhouse gas emissions

q Annual survey is sent to a sample opublicly traded companies

q Includes questions on strategicreadiness or climate change

q Full access to data is given tomembers, who are institutionalinvestors

International Standard onAssurance Engagements 000

Standard or providing assurance onnon-nancial inormation

q Issued by the International Federationo Accountants

q Generic standard not specic to but

oten used to assure CR&S reports

AA000 Assurance Standard Standard or providing assurance onCR&S reports

q Issued by the non-prot organizationAccountAbility

q Approximately 3% o CR&S reportsissued in 2007 were assured using thisstandard

SA000 Cross-industry standard or the ethicaltreatment o workers

q Issued by Social AccountabilityInternational

q Only organizations accredited by SAI

can issue certications to the SA8000standard

Electronic Industry Code oConduct

Standards or electronics companiesand their suppliers

q Created by a coalition o electronicsindustry companies to reduceconusion among their suppliers

q Provides or joint audits o suppliersthrough certied third-party auditors


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ContactsMark LaytonGlobal Leader, Enterprise Risk ServicesDeloitte & Touche LLP United States

+1 214 840 [email protected]

Preben J. SoerensenPartnerDeloitte Denmark

+45 3610 [email protected]

Helena RedondoPartnerAssurance & Enterprise Risk Services

Deloitte Spain+34 91 514 50 00

[email protected]

Eric HespenheideCorporate Responsibility & SustainabilityGlobal Leader

Enterprise Risk ServicesDeloitte & Touche LLP United States+1 313 396 3163

[email protected]

Eric DugelayPartnerCorporate Responsibility & Sustainability

Global Working GroupDeloitte France+ 33 155615413

[email protected]

Mike BarberPartnerCorporate Responsibility

Deloitte United Kingdom+44 207 007 [email protected]

Janet LewellPartner

Corporate ResponsibilityDeloitte Australia


Joachim GanseDirector

Deloitte Germany+49 211 8772 2406

[email protected]

James C. CasconePrincipal

Audit & Enterprise Risk ServicesDeloitte & Touche LLP United States


Christophe QuivreuxPartner

Enterprise Risk ServicesDeloitte Belgium+32 2 800 22 69

[email protected]

Keiko TatsuwakiPartner, National CR&S Leader

Enterprise Risk ServicesDeloitte Japan+81 3 4218 7215

[email protected]

Tom DekarVice Chairman and

Regional Managing PrincipalNorth CentralDeloitte LLP United States


Valerie Chort

Partner and National LeaderCorporate Responsibility & Sustainability

ServicesEnterprise RiskDeloitte Canada+1 416 601 6147

[email protected]

Chanhee Han

PartnerEnterprise Risk Services

Deloitte Korea+82 2 [email protected]

Chris Park

PrincipalDeloitte Consulting LLP United States


Johanne GelinasPartner

Corporate Responsibility & SustainabilityEnterprise RiskDeloitte Canada


Sandra HeutsPartner

Enterprise Risk ServicesDeloitte Netherlands+31 204547171

[email protected]

Kate PavlovskyPrincipal

Deloitte Financial AdvisoryServices LLP United States+1 713 982 4358

[email protected]

Pablo FrederickSenior Manager

Sustainability and Climate ChangeDeloitte Chile+56 729 8677

[email protected]

Jacqueline RobertsonPartner

Audit and AssuranceDeloitte New Zealand+64 4 470 3561

[email protected]

Yvonne WuPartner

Enterprise Risk ServicesDeloitte China+86 61411570

[email protected]

Aneta WojtunDirector

Enterprise Risk ServicesDeloitte Poland+48 22 511 04 77

[email protected]
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


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1 Not only are CR&S practices widely variable, the term itsel comes in a number o favors: corporate responsibility, enterprisesustainability, and green companies, to name just a ew. To sort it all out, see the box on page 4, Dening CR&S.

2 USA Today, Biouel Boom Raises Beer Prices in Germany, May 28, 2007,http://www.usatoday.com/news/world/2007-05-28-biouel-beer_N.htm

3 Wyn Grant, Commentary on the Common Agricultural Policy o the EU, March 4 2007,http://commonagpolicy.blogspot.com/2007/03/biouels-may-push-up-beer-prices.html

4 Deutsche Welle, Germanys Cheap Beer Tradition Under Threat From Biouels, April 23, 2007,http://www.dw-world.de/dw/article/0,2144,2451025,00.html

5 United Nations Food and Agriculture Organization, Press Conerence on Soaring Food Prices and Action Needed, byDr. Jacques Diou, Director-General, FAO; Rome, December 17, 2007,www.ao.org/newsroom/common/ecg/1000733/en/acts99.pd

6 CNW GROUP, Scotiabanks Commodity Price Index Leaps in October, November 28, 2007,http://www.newswire.ca/en/releases/archive/November2007/28/c5206.html

7 BBC News, Mexicans stage tortilla protest, February 1, 2007, http://news.bbc.co.uk/go/pr/r/-/2/hi/americas/6319093.stm

8 Protests over high ood prices linked to climate change and biouel production have also taken place in other areas o the world,including Morocco, Uzbekistan, Yemen, Guinea, Mauritania, and Senegal. See reerence #5, above.

9 Visit www.deloitte.com/RiskIntelligence or additional inormation on Risk Intelligence.

10 The Economist Intelligence Unit, Doing good: Business and the sustainability challenge, February 2008.

11 Email [email protected] to order your ree copy o the Risk Intelligence Map.

12 See the Deloitte publication, The Risk Intelligent Approach to Oshoring and Outsourcing, atwww.deloitte.com/RiskIntelligence.

13 For more inormation about GHG emissions verication, including the challenges created by diverse measurement andreporting standards, see the Deloitte whitepaper, When quality counts: The importance o emissions verication orgreenhouse gases, available at http://www.deloitte.com/dtt/article/0,1002,sid%253D1009%2526cid%253D197890,00.html.

14 Social Investment Forum, 2007 Report on Socially Responsible Investing Trends in the United States,http://www.socialinvest.org/pd/SRI_Trends_ExecSummary_2007.pd. Accessed March 10, 2008.

15 Pleon Consulting, Accounting or Good: the Global Stakeholder Report 2005, April 2005,

http://www.pleon.com/leadmin/user_upload/ordner_pleon_com/ordner_insights/Pleon_GSR05_en.pd.Accessed March 10, 2008.

16 Ibid.

17 According to CorporateRegister.com searches conducted on February 29, 2008, there were 2,345 CRS CR&S reports issued in2007. O these, 495 ollowed the Global Reporting Initiative guidelines and 70 were assured using AA1000.

Endnotes
http://www.usatoday.com/news/world/2007-05-28-biofuel-beer_N.htmhttp://commonagpolicy.blogspot.com/2007/03/biofuels-may-push-up-beer-prices.htmlhttp://www.dw-world.de/dw/article/0,2144,2451025,00.htmlhttp://www.fao.org/newsroom/common/ecg/1000733/en/facts99.pdfhttp://www.newswire.ca/en/releases/archive/November2007/28/c5206.htmlhttp://news.bbc.co.uk/go/pr/fr/-/2/hi/americas/6319093.stmhttp://www.deloitte.com/RiskIntelligencemailto:[email protected]://www.deloitte.com/RiskIntelligence.http://www.deloitte.com/RiskIntelligence.http://www.deloitte.com/dtt/article/0,1002,sid%253D1009%2526cid%253D197890,00.htmlhttp://www.socialinvest.org/pdf/SRI_Trends_ExecSummary_2007.pdfhttp://www.pleon.com/fileadmin/user_upload/ordner_pleon_com/ordner_insights/Pleon_GSR05_en.pdfhttp://www.pleon.com/fileadmin/user_upload/ordner_pleon_com/ordner_insights/Pleon_GSR05_en.pdfhttp://www.pleon.com/fileadmin/user_upload/ordner_pleon_com/ordner_insights/Pleon_GSR05_en.pdfhttp://www.pleon.com/fileadmin/user_upload/ordner_pleon_com/ordner_insights/Pleon_GSR05_en.pdfhttp://www.socialinvest.org/pdf/SRI_Trends_ExecSummary_2007.pdfhttp://www.deloitte.com/dtt/article/0,1002,sid%253D1009%2526cid%253D197890,00.htmlhttp://www.deloitte.com/RiskIntelligence.mailto:[email protected]://www.deloitte.com/RiskIntelligencehttp://news.bbc.co.uk/go/pr/fr/-/2/hi/americas/6319093.stmhttp://www.newswire.ca/en/releases/archive/November2007/28/c5206.htmlhttp://www.fao.org/newsroom/common/ecg/1000733/en/facts99.pdfhttp://www.dw-world.de/dw/article/0,2144,2451025,00.htmlhttp://commonagpolicy.blogspot.com/2007/03/biofuels-may-push-up-beer-prices.htmlhttp://www.usatoday.com/news/world/2007-05-28-biofuel-beer_N.htm


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