Establishing the baseline - CROSSING THE CHASM OF CORPORATE SUSTAINABILITY IN THE YEAR 2000

At the turn of the millennium, the world was a very different place. Environmental and social responsibilities were not a great concern for the corporate world. ‘Globalisation’ was the keyword; otherwise it was ‘business as usual’.

The Exxon Valdez oil spill in Alaska in 1989 had a major impact on public opinion and led to the first high profile call to action by business through the ‘Valdez Principles’. Other major accidents and controversies around sweatshop exposés in Asia spawned new regulations in some countries and kicked off a conversation about corporate reporting in the 1990s.

By 2000, the conversation about the role of business in causing environmental pollution, involvement in human rights abuses and poor labour conditions was building in parts of civil society and at the political level, especially in Europe. However, the debate on how companies should respond was still in its infancy. Most boardrooms still lived by Milton Friedman’s mantra that ‘the business of business is business’ and the profit imperative was king.

In 2000, what characterised company practices?

- Focus on compliance and own operations

- Few strategies or management systems

- Philanthropy presented as the answers

- Ad hoc, reactive and scandal-drive

- Confrontation with stakeholders

A CORPORATE FRAME OF MIND

As the international community started to recognise the growing threat of environmental degradation, it had yet to translate this awareness into action. The interdependence of environmental and social issues was not yet understood, and issues like pollution and social impact were treated separately.

In 2000, the early movers in the corporate world concentrated initially on environmental impacts that were under their direct control. Business had not really started engaging in social and governance issues like labour rights in the supply chain. Combating bribery and corruption was seen as a government problem and something business could hardly affect. In some countries, bribes were even tax deductible and simply accepted as how you ‘got the job done’. In truth, ‘going global’ was a challenge. Companies with otherwise a good track record at home was exposed to a host of new problems abroad, and was struggling to understand how to deal with these difficult situations.

Companies that responded to early calls for CorporateSocial Responsibility, or CSR, interpreted this as a local or community endeavour such as investments in sports facilities, charitable contributions to aid organisations in developing countries and staff volunteering for local events. Contributions made to good causes were largely ad hoc charity and far from strategic, long-term collaborations with expectations of positive social outcomes.

Driven by growing fears of damaged reputations, some companies, mostly from Europe and North America, started focusing on internal risks over which they had greater control. A focus on the broader value chain was entirely absent.

The idea of engaging with stakeholders as a strategic response to managing social and environmental issues was in its infancy in 2000. Dialogue between business and civil society was limited, and the interaction that did take place was very much confrontational, in the wake of a conflict. Relationships were characterised by a high degree of disrespect and mistrust from both sides. When civil society called for greater involvement and responsibility by the business community, the response was reactive and defensive in nature.

Very few companies were aware of the concept of collective action and few international joint initiatives were established. Few had established performance indicators or reported on their social and environmental impact, apart from a small
number of leading companies.

Moreover, in these early days, there were hardly any tools and practical guidance available to help companies better understand these growing expectations.


EARLY EFFORTS

As the call for greater corporate responsibility grew, many companies struggled to see what this meant for them. In the absence of a clear view on how to respond, most companies concentrated on compliance and philanthropy.

By the year 2000, employee safety was becoming embedded more widely in corporate life and many companies included environmental management with safety in their organisations. The main driver was tougher health, safety and environment

(HSE) regulations, introduced following huge industrial disasters like the Bhopal catastrophe in India in 1984, pushing operational safety in operations higher on the corporate agenda.

“It was becoming increasingly clear that the
opening of the world economy, the liberalisation,
the privatisation, the deregulation and so forth
in the 1990s vastly expanded the role and influence
of global companies, but neither governments
nor companies were prepared to deal with
the adverse consequences.”
Professor John Ruggie, Harvard University

The few dialogues that were happening on social issues were yet to be linked to the wider human rights agenda of which most companies were completely unaware. Rapid globalisation and the immense growth in trade and investment across borders increased awareness of how Western companies were operating in countries where legislation on environmental and social and issues was either weak or not adequately enforced. This resulted in a number of highly public stories on corporate misconduct and abuse of natural resources and workers.

The breadth of new issues that had previously not been on the agenda in the boardroom was increasing. Some larger companies were slowly starting to accept a wider responsibility for their actions, but few looked outside of their organisations
for help. A handful of companies, headed by forward-thinking business leaders, joined business networks such as the World Business Council for Sustainable Development to define the business case for corporate sustainability.


REGULATION IS SHAPING UP

By 2000, a growing number of issue specific protocols and international conventions were flowing to national and international law. Recognising that mankind was damaging the environment at a global scale, the Montreal Protocol on Ozone Depleting Substances was successfully reversing the ‘hole’ in the ozone layer caused by CFCs. In 1992, the UN Earth Summit in Rio de Janerio was the largest-ever gathering of world leaders. It resulted in landmark legislation on global climate change (leading to the Kyoto Protocol) and biodiversity. The anti-corruption debate emerged with the OECD Convention Against Corruption (1999), but was still in its infancy.

In September 2000, 189 countries committed to the eight international Millennium Development Goals (MDGs) for the world’s development. However, these goals mainly targeted national governments, and business was not yet involved in the
process.

National laws were generally not able to keep up with the globalisation of business, and although some regulations on specific issues were in place, these were fragmented and scattered, and governments especially in developing countries failed to enforce their own legislation. Environmental regulation mainly targeted high-risk sectors like oil, manufacturing and chemicals.

It was governments that largely saw themselves as the main protectors of the environment and human rights, and there was a widespread notion that the challenges could be ‘fixed’ by punishing business. But some governments were realising that collaboration with business was needed in order for them to change their conduct.

At the same time, business was largely seen as divorced from the rest of society, and did not have a seat at the table on discussions of environmental, social and governance issues. As ‘the business of business was business’, the need for companies
to get involved in politics was seen as non-existent. This led to the widespread notion that business was the cause of the problem, and not likely to be part of the solution.

“Globalisation is a fact of life, but I believe we have
underestimated its fragility. The problem is this. The spread ofmarkets outpaces the ability of societies and their political systems to adjust, let alone to guide the course they take. History teaches us that such an imbalance between the economic, social and
political realms can never be sustained for very long.”
FORMER UN SECRETARY-GENERAL KOFI ANNAN ADDRESSING THE WORLD ECONOMIC FORUM IN DAVOS, 1999
THE DAWN OF SOCIALLY RESPONSIBLE INVESTMENT

Responsible investment was yet to be acknowledged as a concept, and in 2000, only a few investors in developed economies invested in socially and environmentally conscious, niche funds. Where responsible investment did exist, it focused exclusively on negative screening and exclusion of ethically questionable investments like tobacco, alcohol and weapons. Positive shareholder involvement and the concept of active ownership were mainly present in English speaking countries and through leaders in countries like the Netherlands, Switzerland and the Scandinavian countries. Few investors sought disclosure of information on environmental, social and governance action and policies, few exchanges were promoting such disclosure, and few brokers included these factors in their analyses.


BUSINESS ETHICS EMERGING IN SCHOOLS

Several accounting scandals around 2000 led to the introduction of ethics and responsibility in only a few business schools’ curricula, typically available as elective classes rather than within the core course content. The Aspen Institute was an example of an early adopter with its Business in Society program, and later joined efforts with the World Resources Institute in developing the Beyond Grey Pinstripes ranking of business schools incorporating sustainability into their MBA programs.


FEAR OF ‘BLUE-WASHING’ AT THE UNITED NATIONS

Although some UN agencies were working with the private sector, business was largely seen as a source of funds rather than an active and strategic partner. There was initially significant resistance to the Global Compact within some agencies, due to fears of ‘blue-washing’. The concern was that companies might exploit the UN brand, without being held to account for the quality of their actions.

Few parts of the UN family were dedicated to working with the private sector, and as a result staff had limited experience or capacity to deal with business. This resulted in random partnerships with fragmented approaches and methodologies for interaction. Due to this disparate management of business partnerships, doubts were raised whether partnering with business could develop successfully without giving up the neutral position of the UN, and whether these partnerships were even
within the mandate of the UN agencies.

What were we thinking?

- Maximising shareholder value is still the dominant mindset in most businesses and business schools

- Sustainability is a moral issue, and interpreted as charitable contributions

- Part of the problem, not a part of the solution

- Business is seen as 'divorced’ from society

CIVIL SOCIETY AS THE CORPORATE WATCHDOG

Although civil society organisations wanted to change company behavoiur, their main approach was to lobby for stricter regulations on business rather than voluntary and market-based approaches. Some NGOs successfully used ‘naming
and shaming’ as a tool for raising awareness on the role of business in environmental and social issues. Confrontation was mirrored by a defensive corporate world, and the atmosphere was one of mutual suspicion and mistrust. Some of the most successful NGO campagins set out to expose corporate misconduct revolved around high profile issues like deforestation and environmental pollution.

Few platforms for dialogue between business and other stakeholders existed, and campaigners like Greenpeace, Friends of the Earth, Human Rights Watch and Amnesty were reluctant to engage in direct dialogue with business. In this period just before the rise of the internet and social media, civil society organisations enjoyed massive media attention for their activism efforts, and were very important channels for forming public opinion.

“The mindset of the day was still very
much a combination of compliance on
the one hand and philanthropy on the
other.”
Jane Nelson, Director of the CSR Initiative, Harvard University