The past few years have seen the topic of corporate social responsibility (CSR) grow in importance for many companies, and transnational enterprises in particular; it is no longer a slightly cynical exercise in public relations or a bolt-on appendage to select activities. Shareholders and customers alike are demanding that CSR is ‘mainstreamed’ into companies’ global operations. And senior corporate executives have become cognisant that embracing CSR principles is a prerequisite for sustainable business, not just an extra compliance cost.
But this poses another set of challenges for firms at the head of increasingly complex supply chains. While it is possible to ensure through contracts that immediate suppliers adhere to a CSR code of conduct, it is generally harder to enforce similar standards on suppliers located several steps down the supply chain. Therefore, if a transnational company is ardent in its desire to inject CSR principles throughout its whole supply chain, then a passive policy of contractual compliance by immediate suppliers is almost certainly not going to be sufficient. This vexing issue was one topic discussed at the CSR Asia Summit 2008, held in Bangkok last November.
A good example is that of forced labour and human trafficking entering international supply chains. Simon Matthews of Manpower Thailand estimates that more than 12 million people in Asia work in involuntary servitude – one-third of the global total. He also claims that about 2.5 million people are trafficked across national borders each year to be used in forced labour, of which a proportion could be unwilling participants in supply chains of one kind or another. In January 2006, the Athens Ethical Principles were unveiled, intended to foster zero tolerance towards human trafficking, with members of the international business and development communities invited to become signatories to the seven Athens Principles.
But, as Professor Richard Welford of CSR Asia points out, human trafficking is, by its very nature, “an underworld activity”, making effective detection quite problematic, especially at the more remote ends of the supply chain. Yet international business trends such as the rise of global outsourcing, dwindling profit margins for suppliers and widening income gaps in many Asian countries are cumulatively serving to sustain – and probably increase – the scale of forced labour and human trafficking in parts of Asia and the developing world.
Transnational firms must therefore increase the depth and extent of their due diligence on suppliers right through the supply chain, and monitor them over time, says Mr Welford. For example, appraisals need to be made, not just of the working conditions for employees in supplier firms, but also of where these employees came from, and on what terms they were ‘recruited’. There must also be public awareness campaigns that highlight the perils of human trafficking to vulnerable groups, and initiatives that will lessen the vulnerability of such groups through education and new business opportunities. In cases where a transnational firm discovers that a supplier is using trafficked and/or indentured labour, enacting measures to rehabilitate those employees is also needed, rather than simply cutting the supplier out of the supply chain – a measure that could exacerbate matters for the victims.
In recent years, the environment has become the most pressing component under the CSR umbrella. Within that, greenhouse gas emissions and climate change have been at the fore, prompting many firms to move towards achieving carbon neutrality. In numerous cases this includes seeking to pass on some of the additional costs of carbon offsetting to customers who recognise the validity of such action. The logistics company DHL has recently begun piloting a ‘Go Green’ express parcel service that allows customers to have the carbon dioxide emissions associated with shipping their items offset, for an additional charge of 3%. Customers receive certification of this offsetting, which can contribute to their own carbon neutrality efforts.
DHL Asia Pacific senior vice-president Anita Gupta says the global transportation industry accounts for about 14% of total carbon emissions, and DHL is leading efforts to reduce this by setting its own carbon efficiency targets for the years ahead. This followed DHL’s acquisition of a carbon accounting company – now known as DHL Neutral Services – to help it to devise the best strategy. DHL has also developed specialist disaster response teams, which are rapidly deployed into countries when invited to do so by the host government – as was the case in typhoon-ravaged Myanmar recently – to take over airport logistics and provide disaster relief to those who need it, as speedily as possible.
At the CSR Asia Summit 2008 an interesting new analytical tool was unveiled: the CSR Asia business barometer. In its pilot iteration, the 20 largest listed companies on the Hong Kong, Singapore, Malaysia and Thailand stock exchanges were surveyed on their CSR disclosure standards. A total of 62 different indicators were employed by the survey, spanning six broad elements: company codes and policies on CSR; CSR strategy and communication; marketplace and supply chain issues; the workplace and people; the environment; and community investment and development.
The results make for interesting reading, with five Hong Kong-listed companies occupying the top five spots: China Light & Power and HSBC ranked joint first, followed by China Mobile, Hang Seng Bank and PetroChina. Siam Cement of Thailand ranked sixth, and City Developments of Singapore came seventh. CSR Asia plans to extend this CSR business barometer exercise to more countries in the Asian region this year. For responsible investors, this could well become a useful analytical tool for developing Asia-oriented investors, not unlike the well-established FTSE4Good Indices, which are primarily focused on US, European and Japanese firms.
CSR at MAS Holdings
One inspirational example of corporate social responsibility (CSR) ‘mainstreaming’ is that of MAS Holdings in Sri Lanka, which manufactures apparel.
While the aggregate scale of the garment sector in Sri Lanka has contracted since the demise of the Multi-Fibre Agreement, MAS’s activities have grown. This is attributable in part to its considerable CSR efforts, which have impressed buyers such as Marks & Spencer (M&S) and GAP.
One initiative under way is the company’s conversion of a defunct South Korean-owned free trade zone in Sri Lanka into a state-of-the-art 10,219-square-metre Eco Fabric Park facility, for the exclusive manufacture of lingerie for M&S (under the latter’s ‘Plan A initiative’ for ethical trading). Green cover at the park has been increased, some effluents from production activity are being recycled into fertiliser, and the remaining chemical and biological effluent pass through a treatment facility. MAS Holdings is also an active member of the Global Compact initiative.