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Company ethics? They’re not our business

Today The Observer introduces a new series to monitor one of the crucial issues facing business today. Here Nick Mathiason argues that while marketing departments have been busy adding a green sheen to keep consumers on board, the concept of corporate social responsibility has rarely been paid more than lip service

Sunday November 17, 2002 The Observer

The image of Greenpeace activists occupying the Brent Spar oil platform in 1995 after Shell planned to dump the installation supposedly filled with toxic ADVERTISEMENT waste at the bottom of the sea sparked international uproar. In the same year the oil giant was accused of propping up a tyrannical regime in Nigeria to protect its interests.

Meanwhile, rival BP was accused of collaborating with Colombian rebels in a bid to further its business interests.

Swiss giant Nestlé has never lived down campaigns against it for aggressively marketing formula milk to women in poverty-stricken countries. And powerful drug companies were severely embarrassed last year by their decision to sue the South African government to prevent it manufacturing cheap life-saving drugs to treat its Aids-ravaged population.

These issues and many like them spawned the phenomenon of corporate social responsibility (CSR).

CSR says that companies aren’t just profit-making machines. They have wider responsibilities. They must treat employees with respect, limit damage to the environment and act with integrity to customers.

Now every boardroom lives in fear of being fingered as guilty of bad practice. A whole industry of companies has sprung up advising firms on how to present themselves in a good light.

Slick marketeers are employed to convince us that a computer donated to a school by a supermarket really makes a difference.

Business may try to present itself with a clean, green sheen to engender confidence and avoid consumer boycotts. But, increasingly critics say CSR is dead.

A recent report from think-tank Demos said companies view social responsibility as a PR exercise.

Speaking to The Observer, the head of public affairs for a leading supermarket chain admitted: ‘We have to be seen to be doing it,’ he said. This could be CSR’s epitaph.

Meanwhile, the Institute of Public Policy Research controversially revealed only four out of 10 company boards discuss social and environmental issues, routinely or occasionally. And only a third of organisations have a board member with an environmental remit, and a fifth have one with an interest in social issues.

Last week, the final blow fell. After six years of promises, New Labour caved in to lobbying from industry leaders and dropped plans for a corporate killing bill.

‘Some level of government will have perceived how this offence will play with business,’ said David Bergman of the Centre for Corporate Accountability, which has campaigned for legislation.

What campaigners from non-governmental organisations (NGOs) – mainly charities and campaign groups – are furious about is that companies trumpet token projects in public but lobby Governments to retain favourable trade terms.

‘The Bush administration preaches free trade especially when offering advice to developing countries,’ said Oxfam’s Kevin Watkins. ‘But under the 2002 Farm Act it increased subsidies by around 10 per cent to $20 billion a year. These subsidies are devastating poor countries.’

Watkins argues the Farm Act and ‘the sordid deal’ struck between France and Germany to retain Europe’s protection barrier – the Common Agricultural Policy – at current levels until 2013 amounts to a ‘reckless pandering to the big farm lobby’.

Likewise with an eye to its garment industry, the US has failed to lift import quotas on textiles from developing countries. It’s the same story in Europe.

The independent Commission on Intellectual Property set up by the British government said there is evidence that patent protection by international drug companies is driving up the costs of basic medicines.

Dave Timms of the campaign group World Development Movement said: ‘Business may present a cuddly face but international corporations avoid paying corpo ration tax, the world’s poor still die for lack of drugs and clean water and the earth is still sucked dry of resources.

‘Business isn’t wholly responsible for every global crisis. But it is almost always at the scene of the crime.’

Set against the massive life or death issues in which business is involved, CSR seems inadequate. Partnerships between NGOs and business briefly flourished after the 1999 Seattle riots led to World Trade Organisation talks being abandoned.

But CSR was administered what may be the last rites at the World Summit on Sustainable Development in Johannesburg earlier this year. NGOs felt the US government and multinational companies had destroyed the summit’s goal of alleviating global poverty. There was anger at the slow progress on debt relief and increased aid, plus fudges on meeting renewable energy and climate change targets.

The days of partnership between NGOs and business are over. CSR is dead. Welcome to the new campaign age of corporate accountability: demands for binding rules applicable in every country for decent labour and environmental standards.

The battle between big business, government and campaigners is being raised to a new pitch.

Hard to be a saint in the City

‘On current share trends it pays to be socially irresponsible all the way,’ says one City equity analyst of the stellar performance of arms exporters and some oil companies in the current geopolitical tensions.

But other City financiers are taking a more optimistic view about the overall effect of socially responsible investment.

‘It continues to be the fastest growing area of retail investment,’ says Clare Brook, director of socially responsible investment at Morley fund management. Her team moved to Morley two years ago after being offered a chance to work with all the company’s investments, not just a niche ethical fund.

‘We engage with all companies and they appreciate the anticipation of long-term risks from environmental and social policies. We try to get away from the term ethical. What we’re after is sustainable development, which means good performance on the environment and in human rights,’ she says.

Morley has incorporated socially responsible investment into its company-wide voting policy. ‘We vote against any company in the FTSE that hasn’t issued an environmental report or a FTSE 250 company in a high risk sector. A year ago only a third of FTSE issued environmental impact reports, now 2/3 do. We think our voting policy has been instrumental in this.’

Since July 2000 all UK pension funds have been required by law to include a statement on what their social and environmental investment policy is. Individual companies have been lacklustre in voluntarily reporting their environmental impact. About 80 companies in Britain’s largest 350 companies issued environmental reports in the last year.

Trucost are among a raft of companies hoping to fill the gap. It takes basic information from a company’s published reports and costs carbon usage, water pollution and other ‘negative externalities’ that result from business, but which are normally assumed to be free. The end result is an environmental cost expressed in monetary terms. The next step is to get more specific information on the detail of a company’s operation. Each company’s environmental score is publicly available, the reports behind the score are for the company alone.

Morley scores the FTSE 100 companies with a credit ratings agency style A1 to E5 score.

Now there are signs that investment banks are warming to social and environmentally friendly investment. HSBC and Dresdner Bank have made the running in this area in Europe.

‘Business can either change the way it operates or it faces incredible challenges,’ says Morley’s Brook.

Corporate social responsibility code

· Don’t abuse your workforce.

· Don’t cause unnecessary damage to the environment.

· Ensure members of your supply chain are well-treated.

· Treat your customers with respect.

· Don’t do business with oppressive regimes.

· Don’t let patent protection prevent your products being used in cases of national emergency.