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Stephen Timms MPKeidanren: Corporate Social Responsibility |
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Thank you very much for giving me this opportunity to talk about Corporate Social Responsibility (CSR) and the way in which the UK Government has been developing its strategy and vision for it. In March 2000 the Prime Minister, Tony Blair, appointed a Minister for Corporate Social Responsibility – the first such appointment in Europe and the post that I now hold. It rests within a competitiveness brief at the Department of Trade and Industry. It may at first sight seem rather puzzling that Corporate Social Responsibility should be part of a ministerial brief around competitiveness. In fact it fits well because Corporate Social Responsibility is a highly creative activity. The dialogue between enlightened companies, with their expertise and their resources, and effective non-government organisations, with their passion and commitment, is a very fruitful dialogue for innovation and new ideas. And innovation is the lifeblood of our economy and of our competitiveness. I am very enthusiastic about the prospects of Corporate Social Responsibility contributing to the economic, social and environmental goals, which are our Government priorities in the UK. I am grateful to you for the opportunity to discuss these matters with you today. I will set out some of our experiences in the UK with Corporate Social Responsibility, highlighting the important benefits in economic, as well as, social and environmental terms. And I will describe the vision, which the UK Government has for the development of Corporate Social Responsibility. Last Friday, I visited a very large warehouse on the banks of the River Thames in the East London Borough of Newham, the area I represent as Member of Parliament. I was there to see an important new initiative by an environmental organisation called "Greenworks". Their project works like this. The bank HSBC is moving its headquarters from the City of London to a new building at Canary Wharf in the Docklands. The move means that all the furniture in their old headquarters is being thrown away, over 2000 tons of it in total, and replaced with new furniture for the new headquarters. Normally, HSBC would have paid someone to take the furniture away, and it would then all have been dumped at a large landfill site in Essex, thirty miles or so from London. On this occasion, however, HSBC has been persuaded to adopt a more responsible approach. It works like this: HSBC has given Greenworks the contract to remove all the furniture. The cost to HSBC will be a little more than it would have been if the furniture had just been dumped. Greenworks will employ a team of formerly unemployed people to store, clean and sell on all but the least attractive items of furniture – much of it is in excellent condition. The furniture will be sold at low prices to charities and other non-profit organisations for their own use. It wasn't an easy contract to negotiate, HSBC was a very demanding client, but they could not afford to risk any delay to their move. Greenworks is a tiny organisation, so it took some courage on the part of HSBC to adopt this approach. And Lovells, a major London law firm, gave its time without charge to Greenworks so that a mutually satisfactory contract could be agreed. Greenworks hopes that, if it can handle this contract successfully, it will be able to provide the same service to other major employers moving their operations into Docklands over the years ahead. That is an example of Corporate Social Responsibility with clear social and environmental gains. Social gains through providing employment for unemployed young people and through providing good quality equipment for hard pressed non-profit organisations serving their communities. Environmental gains achieved through avoiding the dumping in landfill of many hundreds of tons of furniture. But for HSBC there is a business benefit too. It is increasingly important to major firms that they can demonstrate to their customers and to their staff and to others that they are behaving in a responsible way. It can be deeply embarrassing and commercially damaging for a company to be accused of damaging the environment or ignoring the social problems in its area. And so it is worth the company's while to be a little more imaginative, to make a modest financial investment, and to be able to show as a result that it is behaving in a responsible way. That illustrates very well the kinds of opportunities we need to be looking for in this field of Corporate Social Responsibility. It is an approach that gets away from the old idea that economic, social and environmental goals are always and inevitably in conflict. What we need to work out is how progress on any one of those fronts can support progress on the others. We want to see businesses, voluntary sector organisations and government bodies all working together to address the challenges that face us all, not doing so grudgingly but with imagination and enthusiasm because each sees it as advancing its own key interests as well as advancing the interests of others. In September in my constituency, a large new supermarket was opened by the Tesco Company, one of the UK's biggest retailers. When they were planning the store they established a partnership with the local council, the Government's employment service and the local further education college. The Employment Service identified long term unemployed people in the area that would be interested in working at the store. An impressive training package was put together for delivery by the local College and others. Over three months, a group of over 100 people were intensively trained in using computers, dealing with customers, first aid and other topics. What was unique about it was that everybody getting through to the end of the training was guaranteed a job at the store. At the end of August, I presented certificates to those who had come through the training and it was a very impressive occasion. They included a man who had been unemployed for 13 years following an injury at work, another who had been unemployed for eight years and quite a number of women who had never had a job at all – never had the confidence to look for a job – but all of them received certificates and are today in jobs at the store. They were proud of what they had achieved, and rightly so, and appreciative of the effort which had been invested in them. That is in my view how responsible development should be carried out in areas like the one I represent where there is a high level of unemployment – with serious effort to make sure that the employment opportunities being created are taken up by the people in the area. It meant that 100 people came straight off the unemployment register and directly into work. That was good news for my community. But that is not why the company did it. They did it because they have found that the partnership approach is a good way to recruit staff for stores. They have found that the people recruited through this approach are more committed and more enthusiastic. They respond very positively to the trouble that has been taken to give them a chance through a real commitment to their work – they are better employees than those recruited by less costly, more conventional routes. So there is a real business driver to encourage the company to behave in this socially responsible way. The key is that this activity is seen by corporates not as public relations, not merely as philanthropy, but as mainstream to the business – justified not just by altruism but also on sound business grounds. Otherwise it will not survive. And in Government we want it to survive and flourish, because it can have such an immensely positive impact in addressing big challenges that are among the toughest we face. So what are the business drivers, which are encouraging businesses in the UK to take on these responsible approaches? I would draw your attention to three factors:
I would like to say a little about each of these. Innovation in a Business Firstly, Corporate Social Responsibility is good for innovation in a business. Research conducted recently shows that 9 in 10 Chief Executive Officers across Europe see innovation and creativity as key to a competitive organisation and 2 in 3 believe that responsible business practice can promote innovation by increasing learning from outside and promoting a broader perspective within the organisation. Corporate Social Responsibility is a very fertile ground for innovation – skilled and experienced staff working alongside people from unfamiliar partner organisations, grappling with very important but unfamiliar challenges. The fact that responsible business practices can be a catalyst for innovation and creativity emerges as a significant justification for integrating such practices into the business mainstream. People In The Business Secondly, the most able young people in particular want some answers about Corporate Social Responsibility from potential employers. Young people planning to embark on corporate employment want of course to be confident that they can look forward to a rewarding career, but increasingly they want to know that they will also be making a contribution to addressing the big challenges which our society faces – improving the environment, helping to reduce climate change, improving standards of education, tackling poverty and disease in Africa. A number of major corporate employers have told me that the fact that the most able young people, who they would like to recruit, are asking questions about these issues, is one of the major reasons why they have started to take on these responsible practices. Improving Corporate Reputation Thirdly, companies are increasingly concerned about their reputation among members of the public. A recent survey showed that 68% of consumers do not trust companies. And in the USA, since Enron, there has been 15% fall off in consumer confidence in business in the USA. These public perceptions need to be addressed. If a major oil company, for example, is heavily criticised by non Government organisations for its treatment of the environment or the way it has dealt with local people in areas where it is extracting oil, then consumers are less willing to buy their products and shareholder value is damaged. Increasingly, risk to reputation arising from public criticism over social or environmental practices is a serious commercial risk, which needs to be managed alongside the more conventional risks which managers are familiar with. And this is another driver for the new, responsible practices that we are seeing being introduced. It is estimated that one third of the businesses in the City of London (financial district) have community programmes that, between them, involve 27,000 staff and provide voluntary support to a wide range of organisations which is valued in total at £337 million per year. Regulation The question in my job is what role can Government play in encouraging this kind of responsible practice – to promote these partnerships to form and to deliver on social and environmental concerns. The UK Government does not believe the answer is to pass laws to make it compulsory. It would be very difficult to try and do so, and, in our view, counterproductive. What we are discussing today is organisations voluntarily going beyond the requirements of the law, developing ideas which build on their own particular strengths and interests, and contributing as a result to social and environmental gains as well as to their own proper economic self interest. We want to encourage organisations to display virtue in their activities, but it is not possible to compel virtue through the law. That is not to say there is no place at all for regulation. Of course, responsible behaviour for any organisation starts with legal compliance. There are standards set down in law for environmental protection, health and safety, minimum wage and so on, and every organisation is rightly compelled to comply with them. It is paramount that all organisations comply with the law – recent events have highlighted the importance of exercising responsibility abroad as well as at home. Corporate Social Responsibility goes beyond legal minimum requirements, it is certainly not a substitute for legal minima. It is possible also for well-framed regulations to promote and encourage good Corporate Social Responsibility. In 1999, when I was the Minister for Pensions, I introduced the requirement that, pensions funds should state whether or not they had a policy on socially responsible investment and if so what the policy was. We did not compel them to have a policy, only to say if they did or not. That has been an effective, light touch intervention, which has stimulated a great deal of work on the part of pension funds around the social and environmental consequences of their investments. In the summer we published proposals for changes to the framework of company law in the UK, and one of the effects of those changes will be to require companies, particularly large companies, to publish more information about the environmental and social impacts of what they do, alongside the familiar financial information which they publish every year. Another example of light touch regulation is the recent enactment in UK law of the OECD Convention on Bribery, which makes it illegal under UK law for anyone working for a UK registered company to give a bribe to anyone anywhere in the world. So it is possible to encourage responsible corporate behaviour through careful use of regulation. Financial incentives It is also possible for Government to provide fiscal incentives to act as an encouragement. For example, we decided that we wanted to encourage "payroll giving" – that is employees making financial donations regularly to charity from their monthly salary through their employer's payroll system. So the Government funded a £2 million promotional campaign to encourage employees to donate to charity in this way, backed up by a special ten per cent supplement to the donations provided by the Government. Some employers have also decided to add in a company contribution to each employee's donation. The level of payroll giving has more than doubled so far, and it is hoped that it will reach around £150 million per year within a couple of years. We are also introducing a Community Investment Tax Credit which will encourage corporate investment in disadvantaged areas of the UK, because we believe that kind of investment – starting up new businesses, providing new services, creating new jobs on a wholly commercial basis – is the best way to help people living in those areas. A qualifying investment will attract tax credits worth 25% over five years. So, for example, if an investor invests £100,000 in an investment in a disadvantaged part of the UK, then he can reduce his tax bill from other activities by £5000 per year over five years - £25,000 in total. I believe this tax credit is going to be very effective in just tipping the scales in favour of commercial viability for responsible corporate investments, which would not quite have passed the threshold of commercial viability without the help of the tax credit. Reporting We are keen to encourage companies to do more on reporting their policies and practices in Corporate Social Responsibility, so that people can see both the good and the bad things that have come out of companies' activities. We introduced new voluntary guidelines on environmental reporting in November 2001 and the foreword to the guidelines was written by the Director General of the Confederation of British Industry, reflecting that businesses also realise that more needs to be done in this area. Most large companies in the UK do now publish information on their social and environmental performance each year, alongside the information about their financial results, which they are required by law to publish. There have been some important initiatives by companies themselves to improve their record on reporting. For example, last month, the Forge Group on behalf of the financial services industry published guidelines on the management and reporting of Corporate Social Responsibility in the financial services industry. Some people argue that Government should make it compulsory for every company to publish information about its social and environmental performance. But what we must avoid, at all costs in my view, is for Corporate Social Responsibility to become part of the red tape demanded of them from Government. It mustn't become just another form, which they have to fill in. We don't want them to move Corporate Social Responsibility into their regulatory compliance department, as an unwelcome burden which they have to take on only because Government forces them to do so. That would be very damaging because it would stifle the enthusiasm and creativity and innovation, which are the most valuable features of Corporate Social Responsibility today. Self-Regulation There are some very interesting examples of companies coming together voluntarily and imposing a code of responsible conduct on themselves. For example, the Ethical Trading Initiative includes major UK retailers with a combined annual turnover of more than £100 billion. They have drawn up a base code, which they seek to ensure all the companies who supply to them comply with, in every part of the world. The code is based on the principles set out by the International Labour Organisation and it stipulates, for example, that every employee in a supplier company should be free to join a trade union, is paid in accordance with a fair minimum wage for that company and so on. This is proving a very effective way to raise standards of employment in developing countries. There is a rigorous enforcement procedure and if companies do not meet their obligations then they will be ejected from the Initiative. Another example is the Fairtrade Foundation. With the international price of coffee at an all time low, many coffee farmers in the developing world face financial catastrophe. The Fairtrade Foundation sets out what it describes as a fair price for coffee – above the market price, and stable – so that whatever the conditions in the international market growers will receive a price for their produce which will enable them to make ends meet and provide adequately for their families. Coffee which has been procured in this way is then sold in the developed world with a "Fair Trade" mark, often at a higher price than the regular product, but many consumers are willing to pay more because they know that the growers have been fairly paid. In the Department of Trade and Industry, where I am a Minister, we now insist that all the coffee we buy is Fair Trade coffee, and we are encouraging companies to take the same approach. The Fair Trade approach is being applied to other products too – to tea, chocolate, wine and fruit. International Work The Ethical Trading Initiative and the Fairtrade Foundation both illustrate that Corporate Social Responsibility is important internationally and not just within the developed countries. It was a major theme of the World Summit on Sustainable Development in Johannesburg in September, and there is a good deal of work to be done to implement the agreements which every country signed up to there on Corporate Social Responsibility and other priorities. In Europe, the European Commission published in the summer a communication document on Corporate Social Responsibility, which largely followed our own view that this should primarily be a business driven agenda. The Commission has set up a discussion forum for a wide range of players to consider all the issues about Corporate Social Responsibility and to consider whether more should be done at the European level. The forum will report back to the Commission in the summer of 2004. So the UK Government's aim for Corporate Social Responsibility is that private and public sector organisations in the UK should take account of the economic, social and environmental impacts of their activities, and should take complementary action to address those impacts where appropriate, drawing on their own resources and expertise. We want to:
We see the key role for Government, being in helping to spread the best ideas so that they can be implemented as widely as possible. For example we support a variety of awards for effective Corporate Social Responsibility and find that is a good way to get the message across. We are looking at other approaches too. There is an enormous amount of interest in all this in the UK at present. Our task is to ensure that enthusiasm is translated into action, that responsible approaches become embedded in the mainstream of business practice. And we are optimistic about what we can achieve. |
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Other speeches by Stephen Timms MP
(the following are available from the archive) |
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