The state has a central role in German business culture. So with a new political focus on a low-carbon future, there is hope that German corporate responsibility will soon be given fresh impetus
The state has a central role in German business culture. So with a new political focus on a low-carbon future, there is hope that German corporate responsibility will soon be given fresh impetus
The Clinton aide dictum needs updating. In an environmentally pressurised world, the idea that “it’s the economy, stupid” seems simplistic. The 21st century version should surely be: it’s the sustainable economy, stupid.
Sustainability is taken seriously in Germany, which is the world leader in green technologies and wants to keep things that way. In November 2007, the German government therefore called on the World Business Council for Sustainable Development to conduct a “peer review” of Germany’s sustainable development policies. This was delivered two years later, but it did not make entirely comfortable reading either for politicians or business leaders.
Björn Stigson, WBCSD chairman, spelled out the problems that lie ahead in a speech to the German Council for Sustainable Development in November. He painted a grim picture of the world of the next four decades, during which the planet will gain three billion more people, but have fewer resources with which to meet their needs.
“Governments have realised that this is what the world is looking like: there is going to be a carbon-constrained, a resource-constrained world,” Stigson said. This means that a “green race” must take place. The leanest, greenest, most sustainable economies will succeed in providing the products and services that the environmentally challenged world will need.
But Germany risks losing its head-start in the green race. There was a “lack of vision about sustainability in Germany,” Stigson said, with poor coordination between government bodies, and resistance to change on the part of industry.
Enter responsibility
This is where corporate social responsibility comes in. The German government sees corporate responsibility as a big piece in the sustainability jigsaw. At the beginning of 2009, with government backing, a German national CSR forum started life, with a mandate to do the spade work in creating a national sustainability strategy.
For the government, there are two main goals: increase the visibility of corporate responsibility, and shape it into a tool that will actively promote German values and standards internationally. This, the argument goes, will benefit both the planet and Germany’s export-led economy. Sabine Baun, head of the CSR unit in the federal ministry of labour and social affairs, says: “Shouldering social responsibility could form a trademark of German enterprises at home and abroad. Made in Germany means quality through good craftsmanship and responsibility.”
However, while promoting better communication and international standards, the CSR forum places less emphasis on doing more corporate responsibility at home. Baun says the forum falls back on the argument that “social responsibility has a long tradition in Germany: companies often integrate voluntary social commitment and assume social responsibility in their corporate strategy.”
This may be the case, but when it comes to international sustainability and responsibility indices, German corporations tend to be unremarkable performers. In the Accountability G100 ranking 2008, a rating of companies’ responsible business practices, the highest ranked German corporation is Deutsche Telekom at number 19, followed by Daimler, at 21, and E.ON, at 24. The top-ranked companies tend to be American, British or French, with the odd Dutch or Scandinavian firm thrown in.
A similar mixed performance emerges from the Sustainability Yearbook 2009, an analysis of the Dow Jones Sustainability Index. Some German companies excel, including Adidas, BMW and Siemens, all of which are considered top in their particular sectors. However, while German firms lead six out of 57 sectors covered by the report, UK firms lead eight, and US corporations lead 11.
Fabien Pattberg, a German consultant, says many corporations are “very classic Germans; they do their reporting and that’s it”. Compared with their international counterparts, German firms are “not absolutely top notch”, he says, though he highlights some names, such as E.ON, Henkel and SAP, as emerging stars.
Another sustainability expert, who asked not to be named, said the CSR forum was flawed because any resolution has to be adopted unanimously by its members, which include business interests, non-governmental organisations and government ministries. The outcomes of the forum will probably be limited to initiatives such as an advertising campaign or the creation of an information centre, according to the expert. The forum is expected to finalise its work in early 2011.
Cautious approach
Several reasons can be identified for the middling performance of German firms when it comes to corporate responsibility. The first is the German way of doing business, which emphasises hard-headed, fact-based decision-making over inspiration or “gut feeling”.
Erik Brandsma, chief responsibility officer for power giant E.ON, says the company has an international outlook when it comes to corporate responsibility, but priority-setting is led by German pragmatism, which means that initiatives must be “sound and rigid and well-reasoned”.
Risk-management and the identification of business opportunities form the backdrop to the determination of corporate responsibility and sustainability objectives, Brandsma says. For E.ON, the biggest present risk is climate change, and the regulations that may arise to tackle it. But E.ON also sees major opportunities, such as the move to renewable energy, arising from efforts to mitigate climate change. Corporate responsibility initiatives in this area are welcomed by the E.ON board. “We really try to move it very close to the heart of the business,” Brandsma says.
A second issue frequently linked to Germany’s cautious approach to responsibility is that corporations prefer a top-down approach, with the state taking the lead. This can be viewed as a legacy of Germany’s highly regulated social welfare state, in which companies are expected to look after their workers and communities, including by protecting the environment.
Because German firms are subject to extensive regulation already, they can be hesitant about making additional voluntary commitments unless given direction from above. This applies especially to the question of companies’ social contribution. Thomas Loew, of the Institute 4 Sustainability, says: “Some people in Germany don’t like the ‘S’ in CSR.”
Günther Bachmann, secretary-general of the government-mandated German Council for Sustainable Development, says German firms are already strong and active on sustainability, climate change and social diversity. Through the CSR forum, companies want the government to encourage them to go further by establishing a framework to build on existing initiatives. This means “not necessarily regulation, but a political framework”, Bachmann says.
Coping with crisis
German firms are also affected by the current overwhelming factor affecting business across the world: the financial and economic crisis. Because of this, according to Loew, “budgets in every area are being cut”, and corporate responsibility risks being scaled back. Activities are proceeding on a “lower level, but not necessarily a low level”, he says, and many firms have shelved plans for initiatives until the storm has passed.
Erik Brandsma of E.ON says he is feeling the impact of the crisis, though corporate responsibility at E.ON has not been affected “disproportionately to other departments”. There has been “some shuffling around within the work programmes” but the crisis has not reduced E.ON’s need to be sustainable, he says.
The crisis is undoubtedly a test for corporate sustainability, in Germany as elsewhere. But the crisis could also be the real test of Germany’s sustainability strategy. Sabine Baun of the labour and social affairs ministry says: “Companies can use CSR to shape their environment in a positive direction and avoid risks and create opportunities. Reliable corporate values enhance the competitiveness of companies. CSR enhances enterprises’ competitiveness – especially in times of a global economic crisis.”
Everything is therefore in place for German firms to come out of the crisis fully focused on sustainability and with greatly improved corporate performance. Germany might not be regarded as a corporate responsibility pioneer, but once convinced of the wisdom of a new idea, it moves forward with conviction.
Germany’s corporate responsibility history
Germany is regarded as a corporate social responsibility latecomer, with the idea of “corporate citizenship” first being discussed in the country in the mid-1990s. Germany’s strong social market economy model is one reason for this. Practices such as social dialogue between business stakeholders, high levels of employee protection, and employee representation on company boards are well entrenched in German firms.
Germany has a tradition of co-determination, or the right of employees to have a voice in the management of the companies they work for. Workers are represented through supervisory boards, which oversee executive boards – a two-tier structure that is typical of Germany but less common outside it. Companies with 2,000 or more employees are required by law to have supervisory boards in which employee representatives make up half of the members. Works councils are also a firm fixture of German corporations.
As the business environment has internationalised, German firms have become more open to the corporate responsibility concept. This, along with a willingness to adopt the highest international standards, has meant that Germany’s transnational corporations are expected to operate in line with guidelines and agreements such as the OECD’s guidelines for multinational enterprises, the International Labour Organisation’s tripartite declaration of principles concerning multinational enterprises and social policy, and the United Nations Global Compact.
Corporations operating in Germany are also subject to national legislation relating to corporate governance and behaviour. Obligatory governance standards are laid down by the 2002 company disclosure and transparency law. Also in 2002, the German corporate governance code was established. This sets out management standards for German corporations, in particular in relation to transparency of corporate governance, and clarity in the two-tier board structure.
Case study: E.ON
Power giant E.ON is the world’s second largest energy firm, with interests in Britain, Belgium, Germany, Hungary, Italy and Russia, among others. In 2008, its greenhouse gas output was 147.5m tonnes carbon dioxide equivalent, nearly 20m tonnes more than the entire emissions of Belgium.
Unsurprisingly, therefore, E.ON identifies climate change as its main sustainability challenge and reputational risk. The firm has prioritised a number of corporate responsibility issues through a “materiality matrix”, which classifies issues as “important” or “very important” for E.ON’s stakeholders and for the corporation itself. Many of the most important issues are climate-related: greenhouse gas emissions, renewable energy, efficiency and technology development, and coal-fired and nuclear energy generation.
E.ON’s main environmental target is to reduce its emissions intensity so that by 2030 it generates 360g of CO2 per kilowatt-hour of electricity, down by half from the 720g produced in 1990. It is already making good progress, having cut the amount to 480g in 2008. However, absolute emissions have increased, largely as a result of recent acquisitions in Russia, according to E.ON.
Climate is not the only issue in the E.ON materiality matrix. Also given high priority are fair competition, dealing with corruption and bribery, health and safety, job creation and security, and promoting efficiency and safety to customers. E.ON’s priorities translate into a number of policies, on environmental management, human rights, responsible purchasing, health and safety and communities. The company specifies that suppliers should also take on board these values, such as a commitment to diversity and equality, and environmental standards in procurement.
E.ON subscribes to a number of corporate responsibility standards. It bases its reporting on the Global Reporting Initiative guidelines, and is a United Nations Global Compact member. In 2009, E.ON ranked 14th – up from 20th in 2007 – in Germany’s Institute for Ecological Economy Research sustainability reporting index. The firm’s responsibility strategy is overseen from its headquarters in Düsseldorf by a corporate responsibility council, and implemented by managers and coordinators spread throughout its market and business units.
More information: www.eon.com/en/unternehmen/29268.jsp
Case study: Allianz
From its Munich headquarters, Allianz has spread to become one of the world’s largest insurers, with 75 million customers across 70 countries and €700bn under management. Its corporate responsibility approach is based on a three-part assessment, evaluating issues on the basis of their significance to stakeholders, their impact on the company and the degree to which Allianz can act on or influence the issue.
The highest priorities are stability of financial markets, climate change, employee issues, corporate governance, demographic change, health, and community issues such as access to financial services, responsible selling and education. The company has reported since 2002 on its activities via an annual sustainability report.
Allianz scores well on the Dow Jones Sustainability Index, being ranked the best direct insurer. However, Germany’s Institute for Ecological Economy Research sustainability reporting index, which measures reporting transparency and quality, reflects less well on the company, ranking it 41st out of Germany’s 50 largest corporations. In particular, Allianz scores low compared with its peers on responsibility in the supply chain, and on social responsibility.
The ageing population is one area of particular interest to Allianz, which aims to be the “thought leader in the retirement market”. Its assessment of the pensions situation in Europe is sobering: countries such as Spain are ageing quickly, yet have done the least to deal with this by reforming their pension systems. Allianz says it wants “to share its expertise on demographic change, for the benefit of society”. It is also revising its employee policies so that staff can continue working longer, and more flexibly.
Microinsurance, meanwhile, is a developing area. Through local partners, Allianz provides death and disability cover for the inhabitants of poor countries. Microinsurance is a “world apart” from its rich world operations, Allianz says. It is an extremely low-margin business. Premiums in some parts of India stand at just €2.50 annually. But it can help recovery when disaster occurs, as in November 2008 when Cyclone Nisha hit southern India, and local Allianz assessors dealt with 16,000 claims.
More information: www.allianz.com/en/about_allianz/sustainability/index.html
Links:
World Business Council for Sustainable Development peer review report on Germany