Spain’s largest companies began their corporate responsibility journey a decade ago, but recently have begun to sharpen their focus on the specific sustainability issues affecting their individual operations
For a country with the highest unemployment rate in the European Union and little cause for economic optimism, it may seem surprising that the number of companies signing up to the UN Global Compact – and therefore committing funds to corporate responsibility programmes – increased by 30% in 2009.
Spain is home to some of the world’s largest companies in telecommunications, gas distribution, renewable energy, banking, heavy construction and textiles. Many Spanish companies, such as Telefónica, BBVA, Inditex and Iberdrola, have been embracing corporate responsibility for many years.
For those companies operating internationally, the work of their CR teams has continued through the economic crisis. National companies with limited or no operations outside Spain – which were perhaps hit harder by the crisis – have had in some instances to reconsider the scope of their corporate responsibility programmes.
What is different now from a few years ago is that CR requirements have become prevalent in government and private contracts, and Spain’s new sustainable economy law, in effect since March 2011 under the government’s strategy for a new sustainable growth model, will require companies with more than 1,000 employees to start reporting on corporate responsibility. Although some critics argue that much of the new law is window-dressing, it does represent a sincere effort by the government to embed corporate responsibility practices into the fabric of the Spanish economy.
The green paper published by the EU in 2001 – Promoting a European Framework for Corporate Social Responsibility – was a milestone for corporate responsibility in Spain. The document provided the foundation principles and tools for corporate responsibility programmes that many Spanish multinationals used to structure their efforts.
The creation of the UN Global Compact, the prosperous Spanish economy at the time and the new opportunities created by various ethical indexes provided the right context for Spanish companies to establish responsible business programmes. And while many Spanish corporations had previously engaged in social or environmental activity, it was not until the publishing of the EU green paper that many of them began to understand the importance that corporate responsibility would have on their business and the need to build more rigorous and integrated programmes.
Big business leaders
Multinational companies operating in Spain – both Spanish-owned and international – have for the most part been leading the way in reporting and driving the social dimension of CR (with the exception of the energy sector which has also led in terms of the environment). There are also some examples of Spanish companies making good progress on the implementation of their corporate responsibility programmes in other markets where they operate and across their supply chain.
On the other hand, there are still opportunities for more effectively addressing materiality in the supply chain, for deeper stakeholder engagement and for the transfer of good business practices from companies listed on IBEX 35 – the 35 most liquid companies listed on the Spanish stock exchange – to other companies operating in Spain.
While the economic crisis has not halted strategic corporate responsibility work for IBEX 35 companies, “the crisis has made the CR process more selective as those who were engaging in CR work just to convey an image were the first ones to fall”, according to Joaquin Garralda, secretary of the UN Global Compact Network in Spain and dean for academic affairs at IE Business School.
In the past few years, Spanish companies have been in something of a Global Reporting Initiative reporting frenzy. The 2010 GRI report cites Spain as the European country with the most reporting organisations – a striking 22%, which is twice the rate of the runner-up (Sweden with 10%). Among examples of best practice is BBVA integrating its sustainability report into its financial annual report for the first time.
Tomas Conde, sustainability director at BBVA, says: “Corporate responsibility in Spain is becoming more mature. We are moving towards a process of integration into the rest of the business.”
Conde says that in the case of BBVA, “it’s the business units that do the day-to-day corporate responsibility work while the CR team helps with co-ordination”.
Responsibility to sustainability
Another positive corporate move is the transition from the concept of social responsibility to that of sustainability. This is evident, for example, in Telefonica’s latest report and speaks for the company’s increased commitment to delivering long-term value for shareholders based on social, environmental and economic development.
As a number of Spanish companies expand their business globally, for instance Telefónica buying O2, they have encountered a number of corporate responsibility risks and opportunities. These include implications for company reputation, stakeholder networks, access to social indexes, government contracts, and so on. Those same companies now ask their suppliers to meet minimum levels of compliance.
And finally, Spain’s new sustainable economy law may well start a new wave of corporate responsibility adoption and reporting by companies with more than 1,000 employees. Corporate responsibility has become a strategic business tool, a product/brand differentiator, a long-term value creator, an effective way to mitigate social and environmental risks, and in some cases a licence to qualify and operate.
The domino effect
One of the biggest changes in the past five years has been the extension of corporate responsibility programmes across the value chain, driving suppliers to adopt social, environmental and economic criteria. A new development is that a number of Spanish organisations are starting to use independent third-party procurement and auditing services to help them with the selection and monitoring of responsible suppliers.
Some companies, including fashion retailer Inditex, have set up their own supply chain labour standards, processes and auditing programmes to work with suppliers, and have joined the Ethical Trading Initiative. Abengoa, a Spanish energy company operating internationally, requires all its suppliers to measure and report their emissions as part of its greenhouse gas monitoring and reporting system.
Referring to the globalisation of companies and their supply chain auditing programmes, Orencio Vazquez, co-ordinator of the CSR Observatory in Spain, says: “There is progress in this area, but there is still the question of how the audits are taking place.”
He says that while the theory is all well and good, what’s really important is the rigour of the process and the results.
Spanish society has a long tradition of humanitarian action, which may explain why Spain leads the world in the donation of organs and ranks as the world’s sixth most charitable country. In the same way, Spanish companies have long been investing in community social programmes, even before John Elkington coined the term triple bottom line.
Today, this social action tradition is demonstrated by the high scores a number of Spanish companies are receiving on the social dimension of the Dow Jones Sustainability Index.
The question that increasingly more companies are asking themselves is whether or not those programmes address their individual material issues, rather than general social issues. There is opportunity for Spanish firms to focus their social programmes more on materiality, such as increasing their labour standards, and less on “traditional” social philanthropy.
Renewables leadership
Iberdrola, Acciona, Endesa and Gamesa are among the Spanish companies operating in the renewable energies sector – where Spain is a world leader.
Iberdrola is the world’s largest producer of wind power and has been very active in the European climate change talks. The company has made a public commitment to keep its carbon emissions per kWh at least 20% below the average of the European public electric sector by 2020.
Outside the energy sector, there is still much opportunity for companies to embrace the challenge of climate change, to publicly commit to targets and share more openly the results of their progress.
In 2010, 54% of the earnings of the IBEX 35 companies came from their operations outside Spain, mostly from the Latin America region. For companies such as Santander and Telefónica those figures are more pronounced, given their geographically diverse portfolios.
Global corporate social responsibility programmes with company-wide policies are becoming increasingly common among Spanish multinationals.
Telefónica, the DJSI telecommunications super sector leader, has created its own global CSR framework. Alberto Andreu, Telefónica’s chief reputation and sustainability officer, says: “Headquarters manages global CSR risk while individual countries have autonomy to work on local opportunities.”
Telefónica’s new model is detailed in the company’s latest sustainability report. The report includes a dedicated section that covers corporate responsibility progress by market.
This presents an opportunity for other Spanish international companies to follow suit, reporting on a country-by-country basis. Right now, it is often unclear how Spanish international companies address responsibility issues outside Spain.
Case study: Stakeholder engagement at Repsol
Repsol is a Spanish oil and gas company with operations in more than 30 countries. The sector is highly sensitive: there are significant environmental and social impacts from extracting raw materials, and many projects take place in regions populated by indigenous groups.
In 2004, Intermon Oxfam (IO), the Spanish NGO that is part of the international Oxfam confederation, approached Repsol to establish a dialogue to correct the negative impacts of the company’s operations on indigenous groups in Latin America and to persuade the company to adopt new practices in line with the ILO Convention 169.
For three years, IO published reports criticising Repsol for the negative social, environmental and economic impacts its operations had on Latin American indigenous groups and for only trying to comply with the minimum requirements established by the local laws – which were not enough to protect the group’s well-being.
Public reports and media campaigns covering the negative impacts of Repsol on Bolivian or Peruvian indigenous groups coincided with the installation of new governments in the region that were more protective of indigenous people’s rights. The pressure increased as Repsol realised that being subject to public criticism was starting to put at risk its licences to operate.
In May 2008, backed by a coalition of shareholders, organisations and investors, IO demanded at Repsol’s annual shareholder meeting that the company adhere to Convention 169.
Shareholder activismis new to Spain and this was in many ways a watershed moment. Seeing the reputational risk and threat to its licence to operate in Latin American markets, Repsol’s management committed to examine the issue in depth and in 2008 the company worked with civil society organisations, including IO, to adopt a new company policy for indigenous groups. In 2010 the company went a step further, making corporate social responsibility a strategic function reporting directly to the chief executive.
Repsol’s recent history demonstrates the importance of identifying and engaging stakeholders in a collaborative way and the shift of tactics by civil society in Spain.
Case study:Social banking at BBVA
More than half of the earnings of IBEX 35 companies come from foreign markets and Latin America represents a good chunk of this.
In the case of Spanish bank BBVA, more than half of its earnings come from the region, including operations in Brazil, Mexico, Argentina and Venezuela. Given the importance of the region to the business and the unique regional challenges on poverty, low financial literacy and lack of access to credit among disadvantaged people, BBVA has identified those challenges as material issues to focus on.
In 2007, with a starting capital of €200m, BBVA created the BBVA Microfinance Foundation, a non-profit institution that promotes financial inclusion for the most disadvantaged people, aiming to drive economic development in the region.
The foundation provides loans to people who otherwise would not have access to them. The initiative helps tackle a social problem but it also allows the bank increase its penetration in Latin America, enabling new customers at the bottom of the pyramid to hopefully enter their banking services long-term.
It’s a win-win-win situation and in this case “philanthropy is strategy” says Tomas Conde, sustainability director at BBVA.
Those at the bottom of the pyramid benefit as they can gain access to credit. The economy benefits as fresh credit energises a dormant sector of the population. And BBVA benefits as it increases penetration of its services, meaning that hopefully more people will use the bank in the longer term.
The initiative has already benefited more than 600,000 Latin American customers and it continues to expand behind partnerships with local financial institutions. The BBVA Microfinance Foundation is a good example of an effective corporate responsibility programme addressing local material issues through the core strengths of the company.
Government gets a grip
A Spanish proverb goes: “It’s not the same to talk of bulls as to be in the bullring.” While Spain has identified its sustainability challenges and developed a plan for a more sustainable economic model, down at the bullring, success depends on strenuous effort.
Spain enjoyed a prosperous economy until the crisis hit in 2007. At that point, the government realised that economic recovery and prosperity would need to address a combination of social, environmental and economic issues.
The creation of the CSR State Council in 2008 was a turning point for government engagement with stakeholders. A cross-sector stakeholder platform was set up to develop solutions that address the needs of key interest groups.
Among the results of the CSR State Council’s work has been the list of recommendations on “transparency in corporate responsibility reporting”. Members say progress has been made but the process of building stakeholder trust and maintaining productive dialogue is still a work in progress. New skills and a fresh mindset are required to enhance stakeholder engagement’s effectiveness and productivity.
The government has demonstrated a commitment to sustainability. Initiatives have spanned socially responsible employment programmes for government workers (for example Plan Concilia, to improve work-life balance), public administration transparency measures (including governance codes), responsible procurement (including a new law for public sector contracts), socially responsible investments (covering where pension plans are invested), and training programmes geared towards small firms.
While the CSR State Council tries to reach consensus among its members on corporate responsibility issues, some Spanish provincial governments have adopted their own regional laws, notably Valencia and Extremadura. Detractors of region-specific corporate responsibility laws say regionalisation will erode the need for strong national laws. The counter argument is that people in regions directly embracing sustainability are likely to be more committed to corporate responsibility.
With the approval of a new sustainable economy law from the government of prime minister Jose Zapatero in 2011, Spain has taken another step towards a more sustainable economy model, built on the back of innovation, sustainability, productivity and transparency. New measures under the sustainable economy law fall under three main headings: economic productivity (for example, cutting bureaucracy so that a business can be set up for €100 within 24 hours), competitiveness of companies (for example, support for Spanish companies to operate more internationally), and environmental sustainability (for example, support for the early adoption of electric cars).