It has been a year defined by recession and recriminations. But concerns over wayward capitalism and climate change are trump cards for corporate responsibility professionals.

In grim years, we look for parallels. The worst recession since the second world war, some say. The biggest collapse since the Wall Street crash, claim others. HSBC chairman Stephen Green stretches even further back. Almost seven centuries, in fact, to 1339.

Two years into the hundred years war, the young English monarch Edward III defaulted on his Italian creditors. Immediately, a string of important Italian banks collapsed. And economic misery was wrought on Florence, the financial centre of its day. The lesson? “The history of world finance could be told as a constant succession of crises.” So says Green in his book Good Value, one of the year’s best-selling business titles.

If crises are repetitive, what have we learned from the global recession that has defined so much of 2009? Much we already knew. International financiers are greedy. Global finance lacks good governance. And banks, basically, rule the world. So what’s new?

After two weary years tottering on the economic edge, the worst seems to be over. Job losses may well still be in store. Generations to come may still be paying off governments’ recent bailouts. But the global financial system is no longer hanging by a thread. The Eurozone and the US are nudging out of recession. China and Brazil are back in growth mode.

Return of the state

And much of that is thanks to governments. Herein lies the first big lesson of 2009. Since the early Reagan-Thatcher years, the mantra has been to deregulate. Let companies loose and they will do what they do best: innovate and prosper. Noone thought what would happen if it all went wrong, mostly because, until now, it hasn’t. When it did, it was left to government – that lumbering, much-maligned bugbear of 21st-century capitalism – to intervene.

That changes everything. The public sector is a player again. And a player in the heart of the global economy: the financial sector. Exactly how it changes things, events in 2009 have not yet made clear. Politicians in the US, UK and other countries with nationalised banks have yet to clarify how they will manage affairs differently from before.

Yet from a corporate perspective, there’s already an irrefutable message. Legislators and regulators are firmly back on the stakeholder map. As Leslie Gaines-Ross, chief reputation strategist at communications agency Weber Shandwick, observes: “Companies now recognise that the government is a very powerful constituency that must be factored into their future plans.”

Neither did governments re-emerge alone in 2009. They brought with them a library-load of regulation. This year saw the passing of yet more stimulus packages, comprising trillions of dollars in loans, guarantees and asset purchases. As long as measures carried the “counter-cyclical” tag (economists’ favoured phrase of the year), they got the nod. To the lawmakers’ credit, such a colossal injection of capital seems to have paid off, for the moment, at least.

The interesting implications of this year’s bevy of regulation lie in the medium and long term. Hidden in the small print could be the roots of a new way of doing business. Or, as independent sustainability consultant Paul Hohnen puts it, a “green industrial revolution”.

The American Recovery and Reinvestment Act (ARRA) provides the clearest example. Rushed through the US Congress inside a month, the $787bn bill gained the assent of the new president, Barack Obama, on February 17. In scale and scope, the legislation dwarfed the Economic Stimulus Act of the previous year.

Much of the ARRA is standard: federal tax cuts, better unemployment benefits, more social welfare provisions and a boost in public spending. But the bill also contains provisions that should rapidly accelerate the development of green energy: $11bn for an electric smart grid, $6bn for renewable energies, $3.4bn for carbon capture experiments, and so on. In total, there is a cool $61.3bn in loans and investments for green technology.

Others are following suit. China and Korea, for example, both included significant clean energy commitments as part of their recovery plans. Likewise, the Organisation for Economic Cooperation and Development (OECD) laid out a “green growth” strategy at its June ministerial meeting. The organisation’s rich country members pledge to expand incentives for green investment and to liberalise trade in environmental goods and services.

“The financial crisis will be seen historically as a turning point … We’ve seen a wind-shift towards a new business model favouring resource-efficient, low carbon technologies,” Hohnen says.

The Harvard Business Review seems to agree. The iconic management journal devoted its September issue to the subject of sustainability. How Green Will Save Us ran the front page headline.

“Companies won’t innovate successfully – and as a result won’t grow – unless they throw themselves whole hog into green initiatives,” predicts the Review’s managing editor, Adi Ignatius.

Survival instinct

There are other upsides to the economic meltdown. Most importantly, plunging stock markets and failing enterprises confirmed the centrality of trust. The past 12 months gave a taste of the market without it. Banks stop lending to one another. Liquidity dries up. Deals go sour. In short, nobody wins.

Step forward corporate responsibility, says Michael Tuffrey, director of London-based consultancy firm Corporate Citizenship. The whole corporate responsibility gamut – stakeholder engagement, social investment, non-financial reporting and so on – represents an exercise in winning and maintaining trust, he argues.

“As such, the crisis has provided companies with a crystal clear argument to behave responsibly and communicate openly,” he says.

It’s an argument that corporate responsibility professionals have been quick to make, and with good reason. Faced with slashing budgets and recurrent reshuffles, the axe was never far from corporate responsibility teams. This year saw the demise of some, but not nearly as many as the doomsayers predicted. Indeed, more than two-fifths of companies saw board interest in the subject increase, a recent survey by UK membership organisation Business in the Community shows.

The fact that corporate responsibility has survived is not to be underestimated. That it should emerge from 2009 leaner and meaner, as it arguably has, is nothing short of remarkable. As with every other management area, corporate responsibility had to prove itself as a driver of value. That meant out with non-aligned programmes, and in with delivering tangible business outcomes and cost savings.

Many of the field’s leading players echo the experience of Susan Morgan, head of CR strategy, policy and planning at telecoms giant BT. “The recession has caused us to focus on the business case for corporate responsibility – how it links to the core part of the business and how it helps achieve our overall business objectives,” she says.

This change in emphasis has not passed unobserved by the world of management consultancy. Accenture Intelligent Cities, IBM Smart Planet and PricewaterhouseCoopers’ purchase of Sustainable Finance are just some of the sustainability-related initiatives to have emerged from this trend-savvy sector.

“The fact that big consulting and services firms have started positioning themselves seriously in the market on sustainable business is a signal of demand growth and change ahead,” says Peter Lacy, managing director of sustainability services at Accenture.

The big green shoot

Carbon, as well as crisis, marks the second big theme of the year. The mainstream debate has shifted. Bar a dwindling coterie of climate refuseniks, most agree the planet is getting warmer. And most admit that manmade greenhouse gas emissions are partly to blame. What to do about it is now the pressing concern of the day.

The shift is not just about the science. Climatologists are improving their models every year, and 2009 saw no decisive breakthroughs. What has changed is everyday people’s attitudes. As voters and consumers, citizens are using their weight to get politicians and companies to act.

Attentive to the pendulum swing of opinion polls, lawmakers finally began to wake up. After the dark fossil-fuel days of the Bush era, the Obama administration is signing to a different tune. In June, the US House of Representatives voted in favour of a 20% cut in carbon dioxide and greenhouse gas emissions by 2020. The bill now awaits go-ahead from the Senate. Japan has gone further, pledging a 25% cut by 2020. Australian legislators are also discussing mandatory reductions.

Driving the legislative momentum throughout the year has been the prospect of negotiations in Copenhagen. On the table at the United Nations climate change talks in December is the international policy framework post-2012, when the Kyoto protocol expires. Environmentalists are calling for binding global targets for one and all. Emerging economies, such as China and India, will need convincing.

If Copenhagen does not deliver, as increasingly seems likely, it is not the end. Recent progress on national-level climate change regulation remains significant, says Meg Brown, a climate change analyst at Citigroup. Laws take time, but the regulatory curve is towards more of them, not less.

“The significance of Copenhagen is in … what it triggers over the next four decades, not what happens during two weeks in December,” Brown says.

The answers lie not only with politicians. This year has provided plenty of evidence that corporate leaders are beginning to face up to their responsibilities as well. In October, more than 100 chief executives broke with the US Chamber of Commerce to lobby Congress to “pass comprehensive climate change and energy policy legislation this year”.

“We condemn Wall Street for taking risks with our economy … but at the same time we’re taking exactly the same kind of risks, with no upside whatsoever, with regard to our climate,” says Wayne Leonard, spokesman of the breakaway group and chief executive of utility firm Entergy.

It’s not all rhetoric either. There have been several bold corporate commitments on emissions reduction in the past 12 months. In September, for example, the aviation industry said it would cut its carbon emissions in half by 2050. The global dairy industry made a similar pledge, although a specific target still awaits.

Significant strides were made to meet consumer demand for eco-friendly products. Paving company Marshalls, for example, became the first UK company to communicate the full carbon footprint of all its products through on-pack labels.

Data suggests more companies around the world will follow. Despite the dire state of the economy, 34% of US consumers are more likely to buy environmentally responsible products today than previously, according to the 2009 Cone Consumer Environmental Survey.

“The last year has seen green purchasing become a mainstream trend. Because of climate change, people are becoming aware of their potential power through consumption, not just elections,” says Soledad Teixido, president of Prohumana, a Chilean non-profit group focused on corporate responsibility.

Investor backing

Arguably the biggest leap caused by climate change has occurred in mainstream investor circles. Sustainability and ethical issues have long interested the socially responsible investment market. Now managers of mainstream funds are taking notice too.

“Climate change as an issue is reaching a point where it is shifting from niche to mainstream,” says Andy Howard, executive director of GS Sustain, the global investment research division of Goldman Sachs.

“When long-term mainstream investors pick up their newspaper or watch the television, they can see that climate change is becoming a more important issue. What they struggled with is how to convert this into an investment conclusion.”

Pressure on companies to disclose more information is rapidly changing that. More than half of Global 500 companies reported emission reduction targets in 2009, according to the business-led Carbon Disclosure Project (CDP). Reporting of emissions forecasts among the FTSE 350 now stands at 30%, up from a mere 7% in 2008.

Such transparency derives from mainstream investors “throwing their weight behind” calls for climate change-related data, says Rebecca Hensen, environment analyst at socially responsible investment research firm Calvert. “Investors are hungry for this information. It helps us understand better the companies’ risk and their opportunities,” she says.

The CDP itself provides evidence of such appetite. The investor-backed group’s membership grew by 23% in 2008 to 475 global institutional investors. Its signatories, which include heavyweights such as Allianz, AXA, Goldman Sachs and Swiss Re, now represent more than $55tn in assets under management.

Further evidence of expanding investor interest can be seen in the environmental, social and governance (ESG) information industry. In September, financial data provider Bloomberg launched an ESG service. The move follows the launch of a global classification system for environmental markets by FTSE. The tool is designed to help investors identify companies that will benefit from low-carbon technologies.

For the ESG information market, 2009 marked a “very significant transition point”, according to Penny Shepherd, chief executive of the UK Social Investment and Finance Association.

She points to the flurry of alliances and buy-outs in the sector as proof. The most active player was New York based risk management firm RiskMetrics, which acquired the leading ESG researchers Innovest and KLD.

Nor are institutional investors just sitting on the information. Almost two-thirds of asset owners now include responsible investment elements in contracts for the external managers of their investments.

This finding comes from an internal survey by the UN-backed Principles for Responsible Investment (PRI), which represents members with more than $19 trillion of managed assets. In 2008, a similar survey registered 38%.

Leaders and laggards

The past 12 months might be best described as the culmination of several long-term trends. Government responses to the financial crisis and the looming threat of climate change have provided the necessary tipping points.

But 2009 was not without its success stories. Leaders show their mettle in times of crisis. Jeff Immelt at GE, Stephen Green at HSBC, Peter Löscher at Siemens and Sam Palmisano at IBM are among the few business leaders who have shed the bunker mentality of their peers to call for a more ethical, more sustainable way of doing business.

“You can build a different business model, you can solve global issues, you can impact a new set of customers and you can make money. We’re proud of that. We don’t back off that,” Immelt told student delegates at the 2009 Net Impact conference.

GE, with its Ecomagination programme, has been advocating sustainability for years. More significant, perhaps, are the newcomers to the field.

Without doubt, giant US retailer Wal-Mart tops the 2009 progress list. Most supply chain initiatives create ripples. Given Wal-Mart’s buying clout, its demand for greater energy efficiency and cleaner production from suppliers has created veritable waves.

“Businesses are having to develop sustainability indicators, strategies and impact reduction programmes just to provide Wal-Mart. It is such an enormous buyer that it’s creating a system in the marketplace in favour of sustainability,” says Brendan May, managing director of sustainability consultants Planet 2050.

A commitment by confectionary companies Cadbury and Mars to source ethical cocoa is the only other development that gets close to the Wal-Mart league. Cadbury has pledged to invest £45m over the next decade to shift its supply chain towards Fairtrade. Likewise, Mars has said that all its chocolate products will use sustainably sourced cocoa by 2020.

“This is going so mainstream now that you won’t have to look for the niche product any more because it will be in your Dairy Milk or Galaxy bar,” May says.

The other big corporate news of 2009 came from Kimberly-Clark. The US consumer goods company won plaudits for committing to increase use of sustainable wood fibre for its Kleenex tissues and other global product lines.

The move is doubly significant because it comes after four years of acrimonious squabbling with environmental activist group Greenpeace. Until recently, Greenpeace demonstrators could be found camping outside Kimberly-Clark’s Canadian headquarters with banners decrying the company’s “crimes against ancient forests”.

That the two organisations should be issuing joint press releases marks a huge shift in NGO-corporate relations. From Kimberly-Clark’s perspective, the accord signals a desire to address issues pragmatically. Their example should convince other corporations and activist groups entrenched in conflict that reconciliation is possible.

Of course, 2009 threw up its incidences of unethical conduct. The year will be remembered for the fraudulent antics of former Nasdaq chairman and Ponzi scheme operator Bernie Madoff.

Corporate defence lawyers also had a busy year. Oil companies Shell and Chevron both found themselves in court, the first for alleged human rights violations in Nigeria and the second over environmental pollution in the Ecuadorian Amazon. Both cases relate back to events that occurred a decade ago or more.

That the year should end with stories of an international commodity trader allegedly dumping toxic waste in the Ivory Coast proves that such cases continue. If a positive spin can be put on the Trafigura scandal (see p30), it is that such corporate misdemeanours are harder to hide in a world of instant communication.

Lasting change?

Next year will hopefully present a rosier picture. The seeds of economic recovery are sprouting. Certainly, the crisis will not last forever. Even the hundred years war was interspersed with long periods of peace.

The key question is whether those who manage the global market will remember the lessons of the credit crunch and its aftermath. Bankers have been chastened, and governments empowered. Most agree with HSBC’s Green that it is time to “recover a sense of what is right”.

The crisis has helped put responsible business on the map again. Integrating it into the heart of business remains the challenge for the years ahead. As Russian playwright Anton Chekov put it: “Any idiot can face a crisis – it’s day to day living that wears you out.”

And what about 2010?

  • Global GDP growth of 2.9%, according to the International Monetary Fund projections.
  • Possible signing of a US Climate Change Act.
  • Global climate change regulation revisited at the next United Nations Conference of the Parties.
  • OECD set to publish a detailed report outlining its Green Growth strategy.
  • Introduction of the UK Carbon Reduction Commitment in April.
  • Global Reporting Initiative to publish food processing guidelines.
  • The International Standards Organisation is set to publish its ISO 26000 guidance standard on corporate responsibility.
  • Wal-Mart’s sustainable product index to be applied in the UK.
  • About 15% of palm oil used in Unilever products will be sustainably certified by the start of the year.
  • Mars to produce about 160m Galaxy bars with the Rainforest Alliance Certified seal.
  • Office supplies retailer Staples is set to source the majority of its paper-based products from sustainably managed forests.
  • Starbucks to make every espresso-based drink from Fairtrade-certified coffee across Europe.


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