In today’s business world, corporate social responsibility (CSR) is no longer an option for companies – it is fast becoming a fundamental imperative for ethical credentials.

One reason is that consumers now expect higher ethical standards when it comes to global brands. According to a 2013 study by Cone Communications/Echo Global, just 6% of consumers believe that generating profit for shareholders is the singular purpose of business. A clear majority (31%), meanwhile, want to see companies doing much more than just donating time and money in communities – they want a long-term commitment to the well-being of the community as a whole.

A stronger focus on CSR is also necessitated by today’s changing regulatory landscape. In April, the European Commission (EC), following other jurisdictions, such as India, China, Brazil and South Africa, released a draft directive on sustainability disclosure, a process for publicly disclosing an organisation’s economic, environmental and social performance. The policy proposed by the EC requires large companies to annually disclose data on the social and environmental impacts of their activities across their supply chain. Although companies can reserve the right not to report on a particular topic, they will be legally required to explain why they are not doing so.

In the UK, regulation is also expected before long. The Department for Business Innovation and Skills (BIS) is currently consulting with key stakeholders to build a CSR framework. The framework, which is expected to be implemented towards the end of 2013, will encourage companies to manage their supply chains more responsibly and transparently.

It pays to be good

Beyond consumer expectations and regulatory necessity, most organisations also see a growing business case. The notion that environmental, social and governance (ESG) issues have a material impact is now beginning to gain more traction, says Andy White, an Associate Director at Sustainalytics, a research company which analyses the ESG performance of companies on behalf of the investors.

For over two decades, Sustainalytics and others in the responsible investment world have been arguing against the widely-held view that ESG issues have little or no bearing on financial performance. “That has been quite a challenge over the years because the industry mainstream regarded these issues as being largely peripheral,” White says. “This perception is changing; around 1,200 investor signatories, globally representing $35 trillion in assets under management (AUM), have signed up to the UN Principles for Responsible Investment (PRI). Such a high level of support indicates that investors want to integrate ESG into the investment process and recognise that ESG is a good proxy for understanding management quality.

“There has been a large amount of research indicating that companies with a good ESG record can perform better, together with a steady flow of assets into responsible investment funds, many of which have performed strongly. And there is plenty of case study evidence at the corporate level to demonstrate that, conversely, poor performance in this area can be very costly. If companies choose to flout health and safety regulations or are involved in big environmental accidents like BP was, for example, the costs of associated clean-ups and litigation can be value destroying for the business.”

However, CSR is about much more than just prudent risk management, he adds. Good ESG practices can also influence how a company approaches new opportunities, with emerging markets being a case in point. With consistently strong levels of economic growth, emerging economies clearly look like opportune places at the moment. “But those regions often have very complex environmental and social issues to contend with which require a level of market intelligence that goes beyond traditional financial analysis,” he explains.

“For example, we’ve seen incidents like the factory collapse in Bangladesh, severe pollution in parts of Asia and miners shot by police in South Africa. Therefore, as companies expand into emerging markets there are great opportunities, but there must be some awareness of how to manage the ESG risks in those countries as well. Long-term reputation damage can ensue if companies are linked to environmental and social problems, and with the rise of instant media and messaging, companies are more in the spotlight than ever before, no matter where they operate.”

If White is correct and integrating ESG with business objectives can have a tangible effect on the bottom line, then companies will surely want to know what measures they can take to improve their performance in this area. Drawing on lessons learned from recent ESG initiatives by Standard Chartered and Bank of America Merrill Lynch (BofA Merrill), Treasury Today has compiled helpful pointers that companies may wish to consider when thinking about how to enhance their social, ethical and environmental performance.

Source: The social and economic impact of Standard Chartered Ghana

Evaluate your performance

In 2010, Standard Chartered published a series of independent studies assessing its impact upon markets in Ghana, Bangladesh and Indonesia – the first of their kind to be conducted by a major financial institution. These reports were produced to help the bank better understand how well it has been performing in relation to its three over-arching CSR principles:

1. Enabling the real economy to achieve sustainable growth.
2. Delivering sustainable finance to respond to risks and opportunities.
3. Leading by example in the workplace and community.

Using a combination of quantitative and qualitative assessments, the Ghana report found that through its core business activity Standard Chartered was making a significant contribution to the country’s socio-economic development. The launch of new products was said to have helped widen access to finance, with basic current accounts benefiting thousands of previously unbanked Ghanaians. The report praised the bank for its commitment to environmental targets, the introduction of sustainable finance criteria and investment in community projects.

But, importantly, these reports were not produced exclusively for the purpose of drawing attention to all the good work Standard Chartered has been doing in developing countries such as Ghana. It was also written in order to highlight areas where the bank can potentially improve and deepen its impact upon the Ghanaian economy.

In Ghana, these included:

• Working with the government to ensure more favourable conditions for small and medium-sized enterprises (SMEs).
• Support diversification of the economy.
• Align community investment programmes with its core skills and services.
• Continue to provide employees with world class training and opportunities.
• Collaborate with government to improve business infrastructure.

By looking critically at its impact on countries such as Ghana, Standard Chartered is demonstrating that it understands the business case for CSR. “We recognise that the long-term sustainable nature of our business is closely linked to the health and prosperity of the communities where we operate,” says Mark Devadason, Group Head of Sustainability at Standard Chartered. “We seek to contribute to sustainable economic growth in our core markets, by promoting robust, responsible business practices and widening access to finance.

“The independent impact studies we have recently commissioned allowed us to assess how we are meeting this objective and better understanding the contribution our business makes to a local economy,” he adds.

Focus on your strengths

When it comes to social projects it helps to have a good understanding of the focus of your business, says Andrea Sullivan, Head of Corporate Responsibility for Europe and Emerging Markets (ex-Asia) at BofA Merrill. For many years now, the bank has been using its expertise to promote and teach financial literacy in communities across the globe through its ‘Your Financial Future’ curriculum. In the UK, Sullivan is thrilled to see an issue that the bank has spent time and money on, to raise awareness about gaining government recognition. “Use your strengths to match the needs of the community,” says Sullivan. “Financial education is now part of the UK curriculum, and that is encouraging; we can marry up what we do well with what is needed – and that alignment is always where companies are going to make the most impact.”

The bank already does a lot of work in communities where its focus is on financial education and employability. The bank’s Financial Education and Employability programme is one of the largest of its kind in the UK, says Sullivan. Over the past six years, more than 6000 young people have passed through the teaching which has been delivered to schools by 2000 BofA Merrill employees. The programme not only teaches young people about financial awareness, but more importantly it teaches employability skills.

Some of these students are now beginning to leverage these newly acquired skills to access higher education and enter into employment, Sullivan says. “I cannot claim that this is all down to one scheme. However, in today’s competitive world, being articulate, engaging in conversation and understanding how to get your point across are so important for getting a job.”

Another initiative the bank is sponsoring is the ‘Tech for Good Challenge’, a competition led by Big Issue Invest and Nominet Trust that offers digital technology entrepreneurs the opportunity to work with leading corporates to develop business plans to help solve social issues for or with young people. BofA Merrill has committed financial resources and eight mentors from within the bank to help the participants put together their business models. As well as ongoing support from business experts, the challenge also offers each successful applicant an investment in their business of up to £50,000. This initiative, Sullivan points out, is another example of the bank focusing on its strengths. “One of the things we have is an understanding of business and a strong technology group,” she says. “We have the knowledge, resources and people, and by connecting start-up capital with need we are able to support innovative ideas to help drive healthy economies.”

Get everyone on board

It is important to ensure that principle of responsibility is firmly embedded throughout the business. “To do that you have to create processes, procedures and an atmosphere of people working together and wanting to do the right thing,” says Sullivan.

The culture within BofA Merrill is now one where employees understand that acting responsibly is to their benefit and that they, as staff members, have a duty to raise issues when they are not right. This, she says, is of central importance to the bank’s CSR agenda. “Addressing the wider community’s social and environmental needs is crucial to the strength of the economy and to the sustainability of our business. It is important that we all understand this proposition,” she explains.

If this can be achieved, then improving CSR doesn’t necessarily mean spending more money. According to BofA Merrill, over the past few years its spend on CSR initiatives has remained reasonably steady. Instead, the difference is that the bank is thinking more strategically about its CSR commitments. In 2011, the bank created an EMEA CSR council to bring together senior management from different areas of the business to discuss the strategic direction the bank should be moving in terms of CSR in the region, and the measures needed to be introduced to achieve its goals.

“This is a journey,” she explains. “We are working together to improve, to be better connected and to be more focused – and that is great for the bank and for its employees.

“These initiatives are not just a ‘nice-to-do’, by any means,” she adds. “If we look ten years out to what we where to be as a company, social responsibility is going to help get us there.”