The notion of corporate responsibility as a strategic management tool, rather than a charitable pursuit, remains new to many Mexican companies
March is a key month in Mexico’s corporate responsibility calendar. It’s when the Mexican Centre for Philanthropy (Cemefi) hands out its annual award. Or, more accurately, awards. Of more than 2,000 applicants this year, a total of 572 companies were judged to meet the 75% pass mark on Cemefi’s 125-question survey.
The numbers have been increasing every year since 2000 when the prestigious award programme was introduced. This year’s awards saw 142 new companies qualify (the remainder of the 572 winners having won multiple times). Cemefi president Mercedes Aragonés insists that the upward curve demonstrates how responsible practice “is advancing very much” in Mexico. Is she right?
Priorities
On the surface, the verdict seems justified. The awarded companies represent about one-third of the country’s total gross domestic product. And not all the winners are large corporations. Just over one-fifth are small or medium enterprises – what Aragonés perceives as a “virtuous circle”, as large companies pressure their suppliers to conform.
The latest round of awards also reveals the priorities for Mexican businesses. Education (23%) and health (21%) occupy the attentions of more than two-fifths of corporate responsibility programmes. The next rung of priorities includes the environment (13%) and welfare (10%), with the remaining third divvied up between activities such as art and culture, sports and recreation, community development, nutrition and training.
The prevalence of core social services is not surprising. Despite being the 11th richest country on the planet (the World Bank put Mexico’s GDP at $1.65tn in 2010 by purchasing power parity), millions of its citizens live in unindustrialised regions and remain very poor.
While environmental sustainability is in the “take-off stage”, companies’ focus will remain on improving basic living standards and economic opportunities, argues Arturo García Bello, a partner at accountancy firm Deloitte Mexico.
To quote his succinct synopsis: “If you don’t solve the way they live, then how can we solve sustainability issues such as consumption of water and electricity.”
Dig a little deeper into Cemefi’s awards and other telling indications about the status of company activities in Mexico emerge. The first relates to scope. Cemefi may have been set up to promote philanthropy, as its full name suggests, but its focus has shifted. Its questionnaire stretches across a range of social, environmental, economic and governance issues.
For Leonardo Cardenas, general director at the consultancy firm Tüv Süd, the award criteria are evidence that corporate responsibility in Mexico “is now considered to go beyond pure philanthropy”.
Edgar Lopez, editor of the corporate responsibility news service Expok, concurs. He says: “Companies are beginning to understand that there is a business logic to CSR.”
Lopez credits foreign-owned multinationals for that gradual shift in perspective – a fact substantiated by Cemefi’s trend data. Of the companies receiving Cemefi’s award, ten have done so for each of the past 11 years, and all bar two of those ten are foreign-owned.
“Global brands are teaching us not only to invest in local communities, but also how to think in international terms like them,” Lopez says.
He cites the example of Gap, which entered the Mexican market with the introduction of the North American Free Trade Agreement in the mid-1990s. The US retailer has worked with its suppliers not only to encourage compliance with its ethical codes, but also to help them take advantage of the “benefit of responsible business”.
According to Luis Béjar Fuentes, director at specialist Mexican consultancy firm SPE, Mexican firms follow a conventional five-stage process towards fully integrated responsibility (which is the fifth stage). The starting point for most is non-strategic donations. The intervening phases are responsible marketing, responsible governance, and responsible treatment of employees and external stakeholders.
“Most organisations undertaking CSR in Mexico are between stages 2 and 4, with some still at stage 1 and relatively few that have moved to stage 5,” Béjar Fuentes says.
Pioneers
Where a company is based is not the only pointer to sustainability performance. Size (the larger the better) and nature of ownership (publicly listed rather than privately owned) also play a significant role.
So too does industrial sector. Of Cemefi’s 572 winners this year, manufacturing and hard industry leads the way (166 companies), followed by food and beverage (94), commerce (62) and banks (41).
The predominance of the manufacturing sector chimes with two primary drivers for responsible practice: brand reputation, which resonates particularly strongly with international companies; and cost savings, for which resource-intensive manufacturers see much potential.
In terms of reputation, export-orientated sectors such as textiles, automotive components and electronics have found themselves in the firing line.
“Inbound industries, that’s to say foreign companies operating in Mexico in export products, all have been very active in pushing CSR,” says Tüv Süd’s Cardenas.
Mexican cement manufacturer Cemex, for instance, has sought to substitute renewable energies for coal as part of its attempt to cut carbon dioxide emissions by 25% by 2015. The moves have saved it the equivalent of 1.4m tonnes of coal so far, while helping avoiding 1.7m tonnes of CO2 emissions in the process.
Grupo Modelo, the large Mexican brewer, meanwhile, has achieved considerable savings through its sustainable water strategy. The company uses less than four litres of water per litre of beer, a 28% reduction in water use since 2000 and well below the industry average of seven litres.
Other sectors have become well known for specific areas of good practice. The banking industry, for example, is singled out for its promotion of progressive workplace practices. In a similar vein, the chemical industry wins praise for product safety and anti-pollution measures.
Challenges
A recent academic study by Ans Kolk and Alan Muller of Amsterdam Business School offers a fairly upbeat take on company practice in Mexico compared with developed economy norms.
Levels of environmental and skills training are found to be consistent with EU levels, for example. Recycling rates actually exceed those of many developed-world countries. Likewise, absenteeism rates are lower.
The local context introduces anomalies. Internships, for example, feature highly on the list of corporate responsibility activities. This is because Mexican law requires university students to perform community service – a definition that includes work experience.
In general, however, practitioners and analysts both acknowledge that the responsibility agenda in Mexico has a long way to go before becoming truly integrated into everyday business.
Some of the challenges are structural, such as the lack of government leadership and the relatively weak voluntary sector.
Lack of consumer pressure is also hampering progress. Although a recent study by Cemefi indicates that Mexican shoppers are prepared to pay up to 23% more for responsible products, the evidence at the till is inconclusive. Price and value continue to be primary differentiators, not ethics.
“Consumers haven’t shown consistency in acting in practice as they say they will in theory,” says Expok’s Lopez.
In fact, winning consumer trust is turning out to be a challenge. Having been traditionally quiet about their social investments, companies are now increasingly integrating these into their advertising and general messaging.
Image marketing
According to SPE’s Béjar Fuentes, there’s a danger such communication is becoming a primary objective in itself rather than a welcome by-product. “Unfortunately, many company activities are still more geared towards ‘social marketing’ in order to sell a ‘good fellow’s image’,” he says.
Results from social assessments suggest the public is somewhat justified in its scepticism. Aggregated data from monitoring and training specialist UL-STR Responsible Sourcing places Mexico below the regional average for labour law compliance.
Proving good intent and improved practices therefore remains key for many Mexican businesses. Moving management for corporate responsibility out of marketing and public relations, where it typically resides at present, will be critical in this respect.
Developing a trusted certification, labelling or rating system would help. The ubiquity of Cemefi award winners raises questions about the programme’s credibility, some critics say. The results are based largely on self-evaluation by the applicants themselves.
“Cemefi has helped lay the groundwork for a lot of basic recognition of CSR as important, but not at the same level as rigorous international standards such as the Global Reporting Initiative,” says Marc de Sousa Shields, managing partner at consultancy ES Global.
In terms of internal management, much remains to be done. Even for those Mexican companies active in the corporate responsibility arena, greater clarity of the business case is required. Better measurement and increased transparency will help bring credibility, too.
Several big challenges fall outside companies’ immediate remit, however. Addressing development problems is obviously necessary, but is not yet carried out in a way that reflects strategic rationale or companies’ core competencies. Too much at present is well meaning, but ad hoc and therefore ineffective.
Another test of corporate responsibility’s mettle is the response to the pervasive culture of corruption in Mexico. Felipe Cajiga, director of CSR at Cemefi, says this is the one point on the organisation’s award questionnaire that almost all applicants struggle to complete.
Making headway is slow work, but evidence of progress exists, Cajiga insists. He says: “We are working with important business associations to educate and develop awareness around the implications of corruption on profits and reputation, not only on a particular company but on the performance of their whole sector.”
Arguably an even larger test is that presented by Mexico’s spiralling crime rates. Mexico City, Puebla, Monterrey and Querétaro remain comparative safe havens, but gang and drug-led violence is pervasive elsewhere.
“The prevalence of violence has hit nearly all strata and regions in Mexico … the depth of the problem is very serious,” says Sean Ansett, founder of advisory firm At Stake Advisors.
Clearly, companies must provide cast-iron guarantees that they are not colluding with criminals or exacerbating – even unwittingly – levels of violence.
Beyond that, responsible companies must ensure the security and safety of their employees. Human rights groups, for example, cite the murders of female factory workers travelling to or from work in border cities such as Ciudad Juárez.
In the longer term, companies should arguably be looking to help combat crime through community projects such as youth employment schemes and cultural cohesion initiatives. That’s easier said than done, of course. But it would at least provide proof of genuine intent.
Leading lights
Cemex
Cemex is the third largest cement producer in the world. The company’s My House Today (Patrimonio Hoy) programme offers credit on purely verbal agreements to groups of low-income families. The initiative is designed to provide technical assistance so that they can build homes from cement and block (the most-used construction materials in Mexico).
Cerveceria Cuauhtémoc Moctezuma
One of Mexico’s oldest breweries, Cerveceria Cuauhtémoc Moctezuma was the first in its industry to develop a country-wide safe driving programme. Owned by drinks giant Femsa, the brewer runs a designated driver scheme, a responsible lifestyle scheme focused on young people, and an initiative for training waiters and bar managers in responsible drinking.
Cinepolis
As one of Mexico’s largest cinema chains, Cinepolis has been active in promoting a support campaign for a medical charity that performs eye operations for children with poor vision.
Met-Mex Peñoles
As far back as 1972, mining company Met-Mex Peñoles built an urban wastewater treatment plant that allows it to use 100% of treated urban waste water in its operations.
Sabritas
In 2007, this subsidiary of PepsiCo in Mexico initiated a programme to integrate mute people into its workforce. The scheme included steps to train fellow workers in sign language.
Sustainable business pioneers
A number of companies have been CemefiSocially Responsible Industry Award winners for 11 consecutive years.
Wal-Mart retailer US
BBVA bank Spain
Hewlett Packard electronics US
Holcim cement Switzerland
Deloitte professional services UK
Grupo Bimbo bakery Mexico
SC Johnson & Son personal care/cosmetics US
Shell energy UK/Netherlands
Coca-Cola beverage US
Zimat public relations Mexico
Source: Cemefi
Note: most winners operate under the name of their local Mexican subsidiary
Labour rights: below average compliance
Mexico received a score of 65 in the UL-STR RS Labour Rights Index – an index that assesses countries’ legal framework and enforcement of laws in the areas of freedom of association and collective bargaining. A score of 100 is reserved for the worst performers.
The country achieved a slightly more respectable score of 50 in the UL-STR RS Assessment Index, which assesses a country’s performance in complying with local labour laws. This places Mexico in both indices below the Latin American average, far behind the likes of Chile and Argentina and lagging Colombia and El Salvador in the overall scores of the UL-STR RS Country Risk Index.
The most common violations found uncovered in extensive social assessments by UL-STR RS’s auditors included:
- lack of employee emergency training
- missing government licences and permits
- no personal protective equipment
- overtime payment violations
- unsafe electrical equipment
- underpayment of social security contributions.
Source: UL-STR Responsible Sourcing
country briefing CSR Latin America Mexico Briefing