US: CSR through innovation

January 01, 2006

With only eight of the Global 500 US companies signed up to the UN Global Compact and only a third of the top 100 publicly listed US companies reporting on their non-financial impacts, one could be forgiven for thinking that corporate responsibility is not exactly a priority in the world’s largest economy.

The differences between CSR in the US and Europe and their cultural and economic roots are easy to see. We know that the US is a more litigious society: companies cite legal risks, not ethical indifference, for not signing up to UN Compact. We know that faith in capitalism is stronger than anywhere else in the world, with more than 51% of US households owning company shares. And of course we know of course that consumers and their massive spending power are a big driver of the economy. But often people forget a very significant difference: the cultural reality that Americans do not like being told what to do, whether by a monarch, a politician, a priest or an NGO. The same applies to the corporate sector. What they do like doing, and do very well, is to run successful businesses, that deliver services and products to consumers.

Entrepreneurial solutions

SustainAbility’s chief entrepreneur and founder John Elkington wrote in Briefing 82 that we are all moving towards a “period of growing demand for scalable, entrepreneurial solutions to problems like climate change, from awareness-raising, agenda-shaping and partnership-building”. US companies have started focusing on precisely this – the role of entrepreneurship. In their quest for CSR, it is here that business can really make its contribution to sustainable development. The challenge is to channel the energy of business to make sustainability a competitive differentiator. The question businesses must ask themselves is: how can we be a better business by thinking about efficiency and sustainability as a possible source of competitiveness? This is going beyond the ‘business case’ for CSR to finding the ‘competition case’.

At a reception hosted by Nike at the Business for Social Responsibility Conference in November, a leading designer – Richard Clarke, Nike’s footwear creative director -said: “Don’t talk to me about wooly concepts. I’m a designer. Give me a challenge. You might say ‘make this shoe with 50% less resources, or that has 100% less impact,’ and we can probably do it”. Nike has moved beyond CSR compliance to, in its own words: “infuse a new, overarching, sustainable-design approach” throughout all of its products, from conception through to production. “We love to innovate – it’s who we are as a company. And we’re committed to making sustainability a core attribute of Nike product innovation”.

CSR epiphanies

As reported on page 5, Wal-Mart has undergone a CSR epiphany. “As I learned more a light bulb came on for me,” chief executive Lee Scott told staff. The CEO of the world’s largest retailer announced a change in approach, away from a defensive posture on issues like jobs, healthcare, community involvement, product sourcing, diversity and environmental impact, to seeing these issues as opportunity for Wal-Mart to become “the most competitive and innovative company in the world”.

Another company to have seen the light this year is US investment bank Goldman Sachs, becoming the first investment bank to adopt an environmental policy, committing to both reducing its own environmental impacts and encouraging its clients to use appropriate safeguards to protect the environment. Three factors stand out about the bank’s approach:

1) Use the markets: Goldman is investing $5m in research into how the free market can solve environmental problems, establishing a new Center for Environmental Markets.

2) Encouragement not requirement: the Goldman approach gives preference to financing projects that secure free, prior informed consultation from affected indigenous peoples, but stops short of requiring it.

3) Rules are needed: Goldman is clear that voluntary action alone will not solve the climate change problem and calls for regulatory and policy approaches to reducing greenhouse gas emissions.

Sustainability drivers

In an economy the size of the US, it would be ill-advised to ignore the power of the consumer. In 2005 the major US automobile companies learned this the hard way when gasoline prices broke the $3 a gallon barrier and drivers traded in their SUVs for energy efficient vehicles. While Ford was announcing plans to cut 300,000 jobs, Japanese rival Toyota was coming close to usurping General Motors as the world’s biggest car manufacturer, partly buoyed by the success of its hybrid vehicles.

And the pervasive power of the consumer was behind GE’s foray into sustainability earlier in 2005. Chief executive and chairman Jeffrey Immelt was keen to impress that GE was responding to the global market trend toward green products and not regulatory demands or an environmental ideology. Immelt claimed that European firms have benefited from a stronger regulatory environment that has forced them to dramatically increase their innovation and technology. GE, along with other US firms, could benefit from greater regulatory “certainty” in the US, he said.

In the US, greater regulatory clarity (at least on a national level), seems unlikely under the current US administration. But some local government bodies are taking independent action. Nine northeastern states, including New York and New Jersey, are signing up to an agreement setting Kyoto-style legal limits on greenhouse gas emissions from power stations. And 187 mayors from US towns and cities, representing 40 million people, have pledged to adopt Kyoto targets for reducing greenhouse gases. In California, Governor Arnold Schwarzenegger is forging ahead with legislation to cut emissions from cars by 30% within a decade.

In a recent survey few US executives cited external pressures from government, laws, or communities as driving their companies to adopt corporate citizenship. Instead, business considerations serve as the principal driver, according to The State of Corporate Citizenship in the US: Business Perspectives in 2005 (published by The Center for Corporate Citizenship at Boston College and The US Chamber of Commerce Center for Corporate Citizenship). Nearly three-quarters (73%) of executives say upholding business traditions and values drives their company’s efforts to be a good corporate citizen. Over half (56%) cite improved reputation and image as a key driver.

Time will tell whether grand gestures towards sustainability will bring companies glowing reputations and improved bottom lines. What is certain is that energy and skills of big business and entrepreneurship could be better channeled towards social and environmental challenges. In the words of GE, today’s environmental challenges present an opportunity for companies to do what companies do best: “imagine and build innovative solutions that benefit… customers and society at large”.

Corporate Citizenship Briefing, issue no: 85 – January, 2006

Michelle Dow is a consultant with The Corporate Citizenship Company in New York.

S.E.E. the power of business

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