In it together

When owners speak, company bosses tend to listen. So why hasn’t the ethical investment movement had more impact? And now that professional investment managers increasingly understand the issues, will more investors follow?

Back in January the UK-based Investment Association published data showing ethical investment at an all-time high, with funds under management totalling £10.7 billion, having more than doubled in a decade. Time to crack open the champagne? Do investors finally understand that good business practices can enhance long term returns? Will corporate behaviour now improve?

Alas, no. The same data shows that so-called ethical funds are stubbornly stuck at 1.2% of the whole market, a figure that hasn’t moved in 10 years. Continue reading →

The fourth industrial revolution will see good jobs shredded like never before. Business needs to rethink the economic environment if it is to be sustainable.

Corporate titans from around the world gathered last week for their annual love-in at Davos. Joining them to provide a scattering of stardust was actor Leonardo DiCaprio.

Fresh off the set of his Oscar-nominated film, The Revenant, DiCaprio was praised for the award-winning work of his eponymous foundation in protecting vulnerable wildlife from extinction. Continue reading →

Even the most cynical of corporate critics are being surprised at the revelations from Volkswagen. What does it also tell us about the role of governments?

The Volkswagen crisis has been escalating since September, when the company admitted that it had installed so-called ‘defeat device’ software in 11 million diesel vehicles so they appear to meet air-quality standards for nitrogen oxide, a gas which poses a threat to human health. The latest twist came this week when it admitted to understating CO₂ emissions for about 800,000 vehicles sold in Europe and overstating their fuel economy.

What started in one market (the USA) just with diesel engines has multiplied: more markets, more fuel types, and more brands, with Audi and Porsche now implicated. So far no other manufacturing groups have been found at fault. However the regulators are circling, while the weakness of their testing is under scrutiny too.

VW’s share price has dropped 40% since September, destroying some €35 billion of shareholder value. Direct costs continue to mount – now estimated at €8.5 billion in fines, compensation and rectification, with unquantifiable long term damage to the brand. In academic circles, proof of the so-called ‘business case’ for corporate social responsibility is much debated; what is surely no longer in doubt is the cost of irresponsible actions.

Aside from annoyed regulators and outraged drivers, others are not letting a good crisis go to waste. For example, Greenpeace is cannily using the affair to drive take-up of electric vehicles – with a specific demand to VW to develop a “mass-market electric car that families can afford”. That’s both smart campaign tactics and astute advice to VW who certainly will need a game-changing story beyond “we’re sorry” if they are to recover their reputation.

And what of governments themselves?

What they did right was pursuing testing and issuing violation notices, at least in America, where the EPA (the US agency to protect human health and the environment) has led the way. It was this action that uncovered the wrongdoing: not VW’s ethics rules or a whistleblower, nor its own sustainability reporting and assurance, nor external scrutiny from the legion of rating and ranking agencies like DJSI.

What governments did not do, at least in Europe, was act swiftly on the available evidence. We’ve known for a decade that the real-life impact of diesel was below theoretical improvements in emissions. In my previous work as a London Assembly member, I was critical of the European Commission which was slow to enforce its environmental directives. I was questioning the London transport authorities as long ago as 2006 on action needed to improve air quality, where diesel was the principal villain. (So external rating and ranking agencies should have known of the problem, if they had gone looking.)

What should governments do now? One thing is to be a lot more inquisitive when their citizens’ health is at risk. Another is to be a lot less trusting about corporate culture that lets bad behaviour go unchallenged, even if one accepts (which I don’t) that it’s all down to a handful of rogue engineers.

Like Watergate before it, Dieselgate can teach us much beyond the specific cause célèbre about underlying corporate systems and a damaging lack of accountability.

With attention focused on the launch of the Global Goals in New York, let’s put the spotlight on gender inequality and how companies can profit from parity.

Among the 17 new sustainable development goals, it’s no coincidence that women are the only demographic group to have a single goal dedicated to them. Goal #5 pledges gender equality, and calls out the role of young women in particular.  That’s because empowerment here will unlock progress on many of the other goals.

Despite some recent improvement on legal rights, the economic disparities between men and women remain stark. To cite just one piece of evidence – from the Food and Agriculture Organization of the United Nations – if women had the same access to productive resources as men (and they comprise 43% of labour force on developing country farms) food yields would rise by 20–30 percent. That’s a lot more mouths fed and families lifted out of poverty.

It’s no surprise then that some companies have made empowering women one of the main pillars of their approach – such as Coca-Cola, under the tagline #5by20. Coke says the role of women is one of the three issues “that will more shape or define the 21st century” than any others. It has committed to enable “the economic empowerment of 5 million women entrepreneurs across the Company’s global value chain by the year 2020”.

Walmart – the world’s largest company by revenue and biggest private employer – has gone further and committed to source $20 billion of products from women-owned businesses in America. Go online in the US and you can select your shopping basket from women-owned suppliers.

Unilever has long recognised that young women – schoolgirls in particular – are a key agent for delivering its health and hygiene programmes such as Lifebuoy handwashing and for meeting its one billion goal. And last year it added a new pillar focused on women’s livelihoods to its legendary Sustainable Living Plan.

Just last month the McKinsey Global Institute took a look at the subject – and put a price tag on the opportunities being missed. Its report, The Power of Parity,  estimates that advancing women’s equality could add $12 trillion to global growth. Actually, that number isn’t even at the top end of its number-crunching estimates. India and Latin America stand most to gain.

And here at Corporate Citizenship, we’ve just published our own advice on what the global goals mean for business, From My World to Our World, the culmination of a 17 week odyssey of analysis in the run-up to the New York launch. If companies want a double-whammy of benefit, focusing on goal number 5 is a great place to start.

This article also appeared at Responsible Business blog

The forthcoming SDGs offer opportunities for companies to reframe the debate about the role of business in development.

Itinerant diplomats have long had the last weekend in September pencilled into their diaries for New York, before moving on to Paris in December. Their business? An international deal on climate change before year end, and agreement on a new set of development goals by the end of this month.

The build up to New York started at Rio+20, the UN Conference on Sustainable Development, back in 2012. More than a year ago CC Briefing was commenting on the potential (Global goals, fewer squabbles) I was optimistic that the role of the private sector would be hard-wired into the final formulation. More recently it’s clear that some companies are already seeing opportunities, with Clare Griffin from GSK noting that partnership and innovation will be key, when attention turns from the ‘what’ of the goals to the ‘how’ of delivering them.

For the last three months, my colleagues and I have been examining each of the proposed 17 new sustainable development goals in turn, looking at the implications for business. All the preparation since 2012 has fostered a large degree of consensus among the 193 members of the United Nations, so that the Transforming Our World agenda is now largely settled.

And what are the implications for companies, once those diplomats have signed up their governments? My belief is the framework is clear enough, broad enough and robust enough to create a new standard against which the commitment and performance of business can and will be judged.

For some, that will prove painful, especially if they hold to old notions that the business of business is business and no more.

Others will seize the opportunity to move from focusing on their own preoccupations and priorities towards understanding how their contribution fits the bigger picture – in short, a shift from ‘my world’ to ‘our world’. They’ll still need to work out what they themselves are contributing and what more they can do by working in partnership.

But now they can legitimately say what others must do and what changes are needed, notably governments, if we are to close the gap over 15 years between today’s reality and the promise of the SDGs – a world free from the tyranny of poverty, with life on this planet protected and with peace and justice secured.

That’s not a bad outcome from a long weekend’s deliberation in New York.

Many people misunderstand what human rights really mean in the modern economy, and the language we use doesn’t help.

Mention abuse of human rights and most ordinary people will think of Amnesty International, dictatorial governments and appalling torture. So they might wonder why a company would produce a report dedicated to its human rights impacts, as Unilever has just done – the first to be fully aligned with the UN Guiding Principles Reporting Framework launched last year. The more clued up might then think about extended supply chains and wonder about prison and slave labour, and see a connection with governments like China.

Other people might see beyond government abuse and conceive of human rights as all about the individual and their rights. Fed by tabloid scare stories, they might even see human rights as about protecting individuals, like suspected terrorists, over the common good – and think companies like Unilever are in league with the European Court and other “dangerously” foreign tendencies.

Actually, think about human rights in the context of companies and the global economy, and you rapidly come down to money. In fact Professor John Ruggie – who has played a seminal role in the UN Global Compact, in the Millennium Development Goals and latterly as the UN Secretary General’s special representative for human rights – says the need for corporate action on human rights stems directly from the “massive gap” between the power of companies in a global economy and the ability of societies to deal with the impacts that creates.

He argues that markets need a framework of rules in which to operate and for participants to thrive, and that current governance frameworks – public law, civil governance and corporate governance – are inadequate. It’s an important argument, which he sets out on Business Fights Poverty here.

If you doubt that human rights comes down to economics, consider two aspects of recent economic history that created massive abuse. The first is the abolition of slavery, highlighted in a recent BBC programme, Britain’s Forgotten Slave Owners, when the government compensated British slave owners for loss of their ‘property’, to the tune of £17bn in today’s money, whilst the slaves themselves received nothing. The second is colonialisation; comments in May by Indian MP, Shashi Tharoor, during a debate about Britain’s debt to her former colonies, went viral with millions of YouTube views. His economic case for reparations is set out here.

Returning to Unilever’s groundbreaking report on its implementation of the UN Guiding Principles on Business and Human Right, look at the eight issues it identifies as most salient and you’ll soon see the economic drivers – including fair wages, forced labour, land rights and working hours. The report itself covers strategy and policy, moving from compliance to promotion, and charting the path ahead. Well worth a close read by anyone trying to comprehend what this all means to a global corporation.

From slavery to modern international capitalism, human rights comes down to who gets the money and how they go about acquiring it. Don’t let the language stand in your way.

This articles was also published by IMPA ACT

Mike Tuffrey reflects on the continuing tussle between public and private ownership

Britain’s new Conservative government made one decision last week that wasn’t promised in its manifesto – moving the Green Investment Bank into the private sector. Instantly dubbed a money-raising privatisation, the Bank itself prefers to talk about bringing in private capital and seeking new investors.

A bit of background first. The UK Green Investment Bank (GIB) was the world’s first investment bank dedicated to greening the economy. Established in 2012 by the coalition government, it had public funding of £3.8 billion to invest in innovative, environmentally-friendly areas “for which there is a lack of support from private markets.”

The Bank’s current management strongly supports the move out of government control. They like the idea of not being limited by public sector borrowing limits. They say they’ll be able to invest in a broader range of projects as previous EU state aid rules won’t apply if it’s at least 70% privately owned. They also say that, whoever the owner(s), its corporate purpose remains defined in law around five green objectives including GHG reductions, resource efficiency and biodiversity.

Critics say that raising additional finance doesn’t require full privatisation. The original logic for public intervention still holds good, as the mainstream financial services industry doesn’t yet have the risk appetite for what’s needed. And anyway, selling up this soon fails to realise the full value of the original investment. In other words, it’s more about politics and deficit reduction, and less about securing long term change towards a greener economy.

Regular readers will know I’m not an automatic private good / public bad person, and instead favour a judicious mix of both. On this one, I tend to agree with the critics. It was good, therefore, to hear M&S CEO, Mark Bolland, speaking thoughtfully about partnership with government at this week’s Plan A 2020 progress update event. Companies need governments and want to work with them, he said. But electoral cycles delay things and business can’t hang around waiting – often they have to push ahead.

He didn’t mention Heathrow, the other big story this week, where business wants action to get the economic benefits, and needs government to prioritise that over the social and environmental disbenefits. Think jobs versus noise and pollution. That one will run and run.

Meanwhile a final thought on the GIB sell-off. Logically, if the City does indeed now ‘get’ the green investment case, this should yield a healthy premium over normal banking valuations. Green investing is the future of making money, surely, in a resource constrained world? Conversely, if the price falls short, that confirms why GIB should have stayed in the public sector a while longer.  We’ll know by the end of the year.

SDG #1: End poverty in all its forms everywhere

Wow! Let’s say that again: The SDG number 1: End poverty in all its forms everywhere. And in just 15 years; by 2030 like the other proposed Sustainable Development Goals being debated, and hopefully agreed by the United Nations in New York this coming September.

Dig into the details of this first goal and it becomes more doable. Eradicate extreme poverty (less than $1.25 a day), halve other forms of poverty according to national definitions, build resilience and so forth.  And actually, this builds on huge progress already made. One of the triumphs of the outgoing Millennium Development Goals was cutting extreme poverty in half between 1990 and 2010, which benefited 700 million people. But that still leaves 1.2 billion people living in extreme poverty today.

Full marks for ambition, then.

What’s needed now is real recognition of how that MDG success happened, and what will drive the next leap forward. That means economic growth led by business through open global trading, supported by governments. It’s true that two of the later draft goals (#8 and #9) do directly address growth, employment, infrastructure and innovation. And it’s also true that the whole framework of the SDGs is intended to be ‘holistic’, more easily allowing business to contribute. Good to see individual companies actively participating in discussions, therefore, along with representative organisations like WBCSD and ICC working together in the Global Business Alliance (GBA) for Post-2015.

My message to business, however, is don’t just focus on growth, on arguing for a bigger cake. What matters, as well is who gets a slice, and how big that is; in other words how growth is shared.

Companies aren’t comfortable talking about questions of equity. Frankly, they’re very shy about facing facts on pay differentials between the top and the bottom. Or who is getting the money up and down their extended value chains in precarious ‘flexible’ employment. Or how much goes to governments in tax versus shareholders in dividends. Or indeed whether developing countries get a fair deal compared to the rich North.

SDG number 1 is big and bold – but also very challenging to complacent business-as-usual companies.

This article also appeared at Business Fights Poverty is part of a series on the SDGs at Corporate Citizenship