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BUSINESS INTELLIGENCE FOR CORPORATE RESPONSIBILITY AND SUSTAINABILITY

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2 Ethical Corporation – Subscription Sample Pack Ethical Corporation • March 2012

EDHARYRALAITS/DREAMSTIME.COM
Essay and manufactured capital (either newly
created or existing capital being circulated
Re-booting capitalism: the action around the system), accompanied by the
under-valuing of natural, social and human
agenda for business capital, has led to what the Australian envi-
ronmental campaigner Paul Gilding
By David Grayson with Melody McLaren described in 2011 as the “Great Disruption” –
There are roles for companies and government in devising the future of capitalism in other words “when both Mother Nature
and Father Greed have hit the wall at once”9.
S intelligence describes the world today tives from, among others, John Kay, Robert
U as “VUCA” – volatile, unpredictable,
complex and ambiguous. Any reader
Reich, Bill Clinton and Jeffrey Sachs3. Simul-
taneously, the Economist ran a cover story,
Crisis of trust
The perceived under-valuing of natural,
reflecting on the big issues facing busi- lead editorial and supplement on the return human and social capital in markets has
nesses, governments and civil society might of state capitalism, with a picture of Lenin helped to precipitate a crisis of trust for both
be forgiven for wishing themselves back in on the magazine cover4. business and government.
a mythical earlier time when “life was As well as “moral” and “responsible” In the 2012 Edelman Trust Barometer,
simpler” and when we didn’t live in such capitalism, others have spoken about “poor management”, “unethical business
interesting times. practices” and “shortcuts that lead to poor
Even a cursory Googling session will quality” were perceived as drivers of irre-
show the intensity of the debate raging The perceived under-valuing sponsible business behaviour damaging
about capitalism. You don’t need to be an of natural, human and social trust in business, while failure to regulate
Occupy protester or in the US Tea Party to business behaviour was damaging to trust
be deeply troubled by current conditions.
capital in markets has helped in government. While government was
Capitalism is living in interesting times. to precipitate a crisis expected to take action to protect consumers
Politicians, academics and activists around and society from irresponsible business
the world are debating the merits of the capi- “conscious capitalism”5 and “long-term behaviour, business needed to be seen to
talist system, how and if it could be improved capitalism”6. Al Gore and his business address these issues directly.
and, for some, whether this economic system partner David Blood issued a “Manifesto for How did we get here? The erosion of
should continue to exist at all. Sustainable Capitalism” – and chose to do trust in business, as well as governments,
As an unrecovered political junkie, I am so in the pages of that bible of free-market can be traced to a number of interde-
fascinated that right-wing Republicans economics, the Wall Street Journal7. pendent factors.
should be the ones to pay for and air a 27- Seven years ago, sustainability • Confusion over what capitalism now
minute documentary against Mitt Romney, campaigner Jonathon Porritt called for means, and how it manifests itself. Many
the Republican front-runner for the presi- “capitalism as if the world matters” to argue that capitalism as a concept still
dential nomination, railing against “Vulture ensure a sustainable future. He identified works, but only with fair competition,
Capitalism”1. five types of “capital” – natural (environ- truly voluntary exchanges, information
In one week in January, all three of the mental/ecological), human, social and symmetry and the absence of externalities.
major UK political party leaders delivered manufactured, as well as financial – that All too often one or more of these condi-
speeches on responsible or moral capi- need to be integrated into our accounting of tions do not exist, causing market failure.
talism2. The Financial Times ran a series on resources from which we extract value8. • Loosening of regulation. The pendulum
Capitalism in Crisis with a range of perspec- Arguably the over-valuing of financial swing from the 1980s onwards against

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Ethical Corporation • March 2012 Ethical Corporation – Subscription Sample Pack 3

state controls saw politicians encouraged
Calls for greater protection and responsible behaviour
by powerful interests (commercial and
intellectual) to instruct regulators to Thinks the most important role that government should play in business is:
exercise a “light touch”.
• The power of global connectivity. The Protect consumers from irresponsible 31%
business practices
uncharted territory of an internet-fuelled
global connectivity has transformed how Regulate business activities to ensure companies
are behaving responsibly
25%
and where we work, created a generation
of billionaire ICT entrepreneurs, dramati- Build infrastructure that promotes and facilitates
business opportunities 19%
cally expanded access to, and the volume
of, information; greater freedom to travel, Work to ensure free market access and open
competition within industries 16% Business
trade and talk more freely but also greater can address
risk that handfuls of fanatics can terrorise, Give or loan money to business when it on its own
experiences financial crisis
4%
torture and torment the rest of us.
• Population growth – the reality of a Government should not play a role in business 4%
population of more than seven billion
(and maybe nine or 10 billion by 2050), 0 5 10 15 20 25 30 35

alongside expectations for far higher
quality of life. Perceived drivers of irresponsible behaviour:
• Unsustainable collective aspirations. • Poor management (29%)
There are no viable solutions for meeting • Unethical business practices (28%)
the consumption wants and needs of • Shortcuts that lead to poor quality (21%)
today’s generation without compro-
mising the ability of future generations
to meet theirs, too. Source: Edelman Trust Barometer 2012
• Reduced deference to/trust in authority.
There has been a healthy decline of To be clear, capitalism is the default mode Connection, a St Paul’s Institute initiative to
unthinking deference, but as a result, a of human behaviour10. But there are many try to re-connect finance and society13.
growing trust deficit in traditional insti- varieties of capitalism and these too are not The Lord Mayor of London’s Restoring
tutions – governments, big business, immutable, or beyond human capacity to Trust initiative is supported by Cass
organised religion etc – as the Edelman improve. Business School at City University London,
Trust Barometer has identified. “You cannot buck the markets,” Margaret TheCityUK, Tomorrow’s Company and
• No alternative ethical frameworks. For Thatcher famously declared. But markets are Berwin Leighton Paisner14. Mark Goyder,
some at least, there has been a welcome the outcomes of vast numbers of human founder of Tomorrow’s Company, has
abandonment of unquestioning adher- interactions and relationships – and like any called for an inclusive approach to business
ence to religious or moral teachings, but other interactions or relationships, they are which transcends the “narrow concept of
there is also a collective failure to find shaped by values, social conventions, laws contracts and transactions” and instead
robust alternative ethical frameworks to (soft and hard), and human wants and needs. “inspires people to produce extraordinary
guide how we live our lives. results by concentrating on the human
What could capitalism 2.0 look like? beings whose needs lie behind every
I reflect on the great waves of change It is evident from the current debates that business relationship”15. These are just some
that my mother, now in her 90th year, has capitalism cannot be transformed by any of the initiatives aiming to humanise
already lived through. A child of the Great organisation acting unilaterally. Activists business and restore trust in its leadership.
Depression and ensuing world war. A from governments, business, civil society, As part of this collaborative ethos, leaders
young adult of the post-war, “never again” academic and religious institutions around of business, as well as other institutions, must
welfare state who mid-life experienced the world must work together to achieve
the pendulum reaction against the viable solutions.
overweening state that led to the Thatcher- Restoring trust in business and markets Capitalism is the default mode
Reagan liberalisation and privatisation, and is a central priority and several initiatives of human behaviour
the fall of Communism that ushered in the have emerged to address this issue.
era of rushed globalisation where markets, Respected City financier and committed be humble and pragmatic enough to recog-
science and society metamorphosed way Christian Ken Costa has argued that “the nise that each will have only a part of the
ahead of governance and ethics could market has managed to slip its moral picture and part of the answer.
develop in response. Now, in her old age, moorings”11, “the capitalist system is fatally Trust in business and trust in government
she lives in an era when the many and not flawed and past its sell-by date” and “for have been intertwined historically, and there-
just the few will insist on helping to rethink markets to work freely, they need somehow fore strategically aligned, sustained action by
capitalism and therefore globalisation and to be nurtured and sustained by a moral leaders in both sectors will be needed to
development too. spirit”12. Costa is leading the London restore confidence in their leadership, as the



4 Ethical Corporation – Subscription Sample Pack Ethical Corporation • March 2012

Edelman Trust Barometer concludes.
What sort of actions can business and
government take to “re-boot” capitalism so as
to restore its legitimacy in modern society?
And how might such actions be supported by

Government can create an
"enabling environment" for
sustainable capitalism
business schools with responsibility for
researching, teaching and providing practical
guidance for business practice?
Government can create an “enabling
environment” for sustainable capitalism
through regulation and incentives. How
might this be done?

Reconnect
Working in concert with government,
companies can take actions to reconnect
stakeholders through dialogue:
• with investors to promote the company’s
long-term purpose and values;
• with employees to agree long-term organ-
isational and individual aspirations;
• with customers to engage them in
supporting shared values; There's a place at the table for government and business
• with suppliers and other partners to
engage them in co-creating long-term In May 2011, sports clothing company GSK’s investment in more than 200
shared value. Puma published the “first ever attempt to employee volunteers despatched to work
measure, value and report the environ- for six months in NGOs around the world.
In his March 2011 call for a radical re- mental externalities caused by a major Although expensive, the programme
appraisal of capitalism, B&Q chief executive corporation and its entire supply chain”17. ensures this cadre of middle and senior
Ian Cheshire opened a high-profile managers have a deep understanding of
dialogue with his fellow business leaders, as Reset how civil society operates and challenges
well as other stakeholders, to rethink the Government and companies can reset time them “to be thoughtful about how they can
ways companies operate to conserve frames, incorporating a long-term mindset drive the behaviour of the organisation to
natural resources16. into operations and communicating this to be in step with society”.
stakeholders, by:
Re-purpose • issuing long-term earnings guidance to Rebalance
Government and companies can re-purpose investment managers; Government and companies can rebalance
business to achieve societal, as well as • setting employee and organisation long- power across stakeholder groups, by:
commercial, goals and to internalise costs term value-creation targets; • increasing relative power of employees eg
currently classified as “externalities”, by: • integrating long-term value creation through ownership and representation on
• incorporating environmental, social and targets into executive pay and compensa- pay committees;
governance (ESG) objectives into organi- tion; • increasing relative power of non-execu-
sational mission and strategy; • structuring shareholder compensation to tive directors as stewards of responsible
• creating accountability at all organisa- incentivise long-term investors. business behaviour and long-term value
tional levels for achieving ESG, as well as creation;
commercial, goals and specifically Speaking at the second Annual Pears • increasing relative power of long-term
ensuring effective board oversight and Business Schools Partnership lecture at shareholders over short-term share-
governance of their commitment; Cranfield School of Management in January holders;
• investing resources in achieving ESG 2012, GlaxoSmithKline chief executive Sir • recognising and rewarding creators of
goals; and Andrew Witty called for business leaders to long-term value, regardless of position in
• integrating ESG impacts into corporate take the “long view” of their companies18. organisational hierarchy.
accounting and communications. This long-term perspective is exemplified by As part of the operating principles estab-



Ethical Corporation • March 2012 Ethical Corporation – Subscription Sample Pack 5

DAVID GALLAHER/DREAMSTIME.COM
reducing or minimising risk and engaging Matters/dp/1844071936/ref=sr_1_1?s=books&ie=UTF8
the firm’s current and future workforce – the &qid=1327131918&sr=1-1
2009 data also included new references to the 9 Paul Gilding, The Great Disruption How the Climate Crisis
perceived benefits of addressing macro-level Will Transform the Global Economy (2011),
sustainability issues and found increased www.amazon.co.uk/Great-Disruption-Climate-
support for the benefits of espousing respon- Transform-Economy/dp/1408815419
sible leadership, and business opportunities /ref=sr_1_1?s=books&ie=UTF8&qid=1327133178&sr=1-1
arising from proactive stakeholder engage- 10 David Grayson, “Future sustainable growth - Capitalism
ment. The implication is that leading that works,” Ethical Corporation 10 September 2011,
businesses are recognising the circular effect http://www.ethicalcorp.com/ communications-
of working within and relying upon, ecolog- reporting/future-sustainable-growth-capitalism-works
ical and social systems. As ecosystems and/or 11 “Ken Costa: The City must rediscover its morality,” Kamal
social systems’ fortunes rise or fall, so do the Ahmed, The Telegraph, 5 November 2011,
fortunes of business rise or fall. They have a http://www.telegraph.co.uk/finance/newsbysector/
shared destiny. banksandfinance/8872354/Ken-Costa-The-City-must-
Free-marketeers might remind them- rediscover-its-morality.html
selves that Adam Smith wanted an invisible 12 Ken Costa, “Why the City should heed the discordant
but also a moral hand. Responsible business voices of St Paul’s”, Financial Times, 29 October 2011,
is not anti-market; it is the best way to guar- http://www.ft.com/cms/ s/0/3cb2bf14-009b-11e1-ba33-
antee social consent for and enthusiastic 00144feabdc0.html#axzz1k4lWtml6
embrace of the market. 13 “London Connection brings Occupy London and FSA chief
Above all, if capitalism is to regain greater together”, St. Paul’s Institute News 5 December 2011,
legitimacy and popular acceptance, and www.stpaulsinstitute.org.uk/News/London-Connection-
become more resilient, capitalists ourselves brings-Occupy-London-and-FSA-chief-together
have to be more involved not just in 14 Lord Mayor’s initiative: Restoring trust in the City,
rethinking but also in reshaping capitalism. I http://www.cityoflondon.gov.uk/Corporation/LGNL_Servi
ces/Council_and_democracy/Councillors_democracy_and
David Grayson is director of the Doughty Centre for Corpo- _elections/The_Lord_Mayor/What_the_Lord_Mayor_does
rate Responsibility and a member of the Ethical Corporation /restoring_trust.htm
editorial advisory board. Melody McLaren is an associate of 15 Mark Goyder, Living Tomorrow’s Company (1998)
lished by its founder, the John Lewis Part- the Doughty Centre for Corporate Responsibility at Cranfield http://www.amazon.co.uk/Living-Tomorrows-
nership is owned in trust for its employee School of Management. Company-Mark-Goyder/dp/0566080206.
members, who “share the responsibilities of 16 Jo Confino, “B&Q boss calls for a radical reappraisal of
ownership as well as its rewards” – profit, 1 When Mitt Romney Came to Town, www.kingofbain.com capitalism” Guardian Sustainable Business 24 March
knowledge and power19. The partnership 2 David Cameron, “Co-operatives Bill to help build a fairer 2011, http://www.guardian.co.uk/sustainable-
paid out staff bonuses and continued to economy”, 19 January 2012, http://www.conservatives.com/ business/b-q-ceo-ian-cheshire-capitalism-reappraisal
prosper during the recession20, drawing News/Speeches/2012/01/Co_operatives_Bill.aspx 17 “Puma Announces Results of Unprecedented Environ-
political and media attention to its alterna- Ed Miliband, “Responsible capitalism”, 19 January 2012, mental Profit & Loss” May 2011, http://safe.puma.com/
tive business model. http://www.labour.org.uk/ed-miliband-on-respon- us/en/2011/05/puma-announces-results-of-unprece-
sible-capitalism, 2012-01-19 dented-environmental-profit-loss/
What’s in it for business? Nick Clegg, “Responsible capitalism”, 16 January 2012, 18 “It’s good for business for business to be good,” Cran-
Our business case research with Business in http://www.libdems.org.uk/latest_news_detail.aspx?titl field School of Management media release 19 January
the Community (2011)21 – which compares e=Nick_Clegg_speech_on_responsible_capitalism&pPK= 2012, http://www.som.cranfield.ac.uk/som/som_appli-
business benefits of corporate responsibility 3659d490-82ef-412c-80e6-6dd5240659e0 cations/somapps/oepcontent.aspx?pageid=14249&appty
reported in 2003 and 2009 – shows that as 3 www.ft.com/indepth/capitalism-in-crisis pe=newsrelease&id=4472
4 “The rise of state capitalism”, The Economist, 19 John Lewis Partnership: Our principles,
http://www.economist.com/node/21543160 http://www.johnlewispartnership.co.uk/about/our-
Adam Smith wanted an 5 Conscious Capitalism Institute, principles.html
invisible hand but also a www.consciouscapitalism.org/about/ 20 James Hall, “John Lewis has come out of the recession
moral hand 6 Dominic Barton, “Capitalism for the Long Term”, Harvard fighting,” The Telegraph 19 Dec 2009,
Business Review, March 2011, hbr.org/2011/03/capitalism- http://www.telegraph.co.uk/finance/newsbysector/
companies have become more adept at for-the-long-term/ar/1 retailandconsumer/6844453/John-Lewis-has-come-
managing their business operations sustain- 7 Al Gore and David Blood, “A Manifesto for Sustainable out-of-the-recession-fighting.html
ably, the range of business benefits has Capitalism”, Wall Street Journal, 14 December 2011, 21 The business case for being a responsible business,
increased. online.wsj.com/article/ Business in the Community and Doughty Centre for
While the top three perceived benefits SB10001424052970203430404577092682864215896.html Corporate Responsibility, March 2011,
were the same in each year – namely 8 Jonathon Porritt, Capitalism as If the World Matters http://www.som.cranfield.ac.uk/som/dinamic-content/
improving operational effectiveness, (2007), www.amazon.co.uk/Capitalism-as-If-World- media/ documents/Business%20case%20final.pdf



6 Ethical Corporation – Subscription Sample Pack Ethical Corporation • July-August 2012

KOSTYANTIN PANKIN/DREAMSTIME.COM
Other section content:

40 Corporate trust

Sustainability commercialised
assess a starting point for that product.
In-house indexes spark Integrating sustainability into product
design takes time, Jones argues. Each “stage
innovation and profit gate” of product development needs to be
examined through a sustainability lens.
By Oliver Balch For that reason, Nike has just launched
Companies are looking to move beyond niche green products to system-level the sourcing and manufacturing sustain-
change. Internal indexes are becoming the favourite tool for making that happen ability index. The internal ranking system
rates supplier factories according to labour
uro 2012 may be over, but the planet is in the roll-out of how they work.” conditions, health and safety standards, and
E still counting the cost. Big tournaments
spark big kit sales. Kids understandably
Rewiring can fast turn into a jumbled
affair, however. Hence, Nike’s development
environmental performance.
The index, which rolls up into the more
want shirts emblazoned with the names of of the pioneering considered design index. comprehensive Nike manufacturing index,
their favourite footballer, but that means Launched six years ago, the index lays out a
more fabric, more water, more energy, and range of sustainability criteria for product “We’re taking key parts of
more resource-use generally. designers. (See box.)
Nike reckons it has a solution. The US The results have been solid, if not spec- the business and thinking how
sports brand recently introduced national tacular. The adhesive-free Considered Boot you rewire them to include
team kits made almost entirely from and the hi-tech Air Jordan XXIII baseball
recycled polyester. Shorts and shirt together shoe made with recycled rubber are two
sustainability in their strategy”
comprise 13 recycled plastic bottles. That’s early innovations. Hannah Jones, Nike
16m recycled bottles in all for last year’s kit.
The example is one of a range of sustain- Sustainable by design seeks to elevate sustainability concerns
able designs to have emerged from Nike’s About one-sixth (17%) of seasonal footwear alongside traditional supply chain measures
labs of late. Flyknit is another. Instead of products now meets the baseline “consid- of quality, cost and on-time delivery.
using multiple materials to make a shoe ered” standard, according to Nike’s most Nike’s goal is to merge these indexes
upper, the company has come up with a recent figures. The baseline does not make eventually, thereby moving the company’s
process that keeps it to just one. The result is them part of the considered line, but their whole production chain onto a more
a lighter shoe, and a lot less waste. scoring helps designers understand and sustainable footing.
Such eco-innovations don’t appear out
of nowhere, says Nike’s Hannah Jones. Her
job title is a clue to just how central sustain-
Considered index
ability thinking is becoming at the
Nike’s considered index is a systems-integrated, online tool for evaluating the predicted environmental footprint of
company: vice-president for sustainable
a product before commercialisation.
business and innovation.
The system examines the largest environmental impacts for Nike products, primarily in the areas of waste and the use
“We run our entire sustainability approach
of materials, energy and solvents. The index metrics are based on more than a decade of collecting product-related data.
in the same way as we think about innova-
Products are assigned a “considered” score using the index framework based on Nike’s known footprint in these areas.
tion,” she says. “What we’re doing is taking
Only products whose score is significantly better than the corporate average can be designated as “considered”.
key parts of the business and thinking how
Nike has recently introduced specific considered footwear and apparel indexes. Its goal is to have all footwear
you rewire them to include sustainability in
products and apparel products reach 100% “baseline” standard by 2015.
their strategy, in their innovation agenda and



Ethical Corporation • July-August 2012 Ethical Corporation – Subscription Sample Pack 7

Examples of P&G sustainable product innovations (2010/11) small proportion of what you sell,” says Mike
Barry, head of sustainable business at M&S.
Product Region Innovation The company’s current objective is for all
its food and clothing products to have at
Swiffer North America Optimisation of packaging design delivered a least one Plan A attribute by 2020. That
Sweep-n-Vac significant reduction in overall packaging. could be Marine Stewardship Council certi-
fication in the case of fish, for example, or
Powder Laundry North America Compaction of powder detergents delivered
Fairtrade cotton in the case of T-shirts.
Detergents savings in packaging and energy.
“What we’re trying to do with [Plan A]
Pantene Nature Western Europe The introduction of plant-based materials
attributes is drive ownership across the
Fusion reduced the use of non-renewable resources.
business so that every commercial part of the
business thinks Plan A, and has an action plan
Always and Latin America, Asia, central Europe, Significant reduction of the polyethylene bag to build Plan A into its product mix,” says Barry.
Naturella Middle East, western Europe delivered an overall improvement. He concedes that the approach prioritises
breath over depth. The idea is for individual
product lines to accrue sustainability compo-
Jones points out: “Ultimately what you rather than roadmaps to certain futures. nents over time. It’s not a licence for the next
want is sustainable products made in Most large companies have multiple breakthrough idea, but the cumulative
sustainable, best-of-class factories.” schemes for encouraging more sustainable impact is arguably more significant than an
Another company pursing a similar products. In as much as internal indexes can isolated case of innovation.
strategy is the US domestic products manu- “pull all these threads together” and set a Already, almost one-third (31%) of the
facturer SC Johnson. As far back as 2001, the framework for decision-making, they can be almost one billion food and clothing items
company introduced an internal system to hugely useful. that M&S sells each year have a Plan A
rank the environmental profile of product White speaks from experience. P&G attribute, according to the retailer’s recent
materials. launched its sustainable innovation products How We Do Business report.
The Greenlist index seeks to move category five years ago. The approach seeks That’s not to say innovation is no longer
beyond “mere risk assessment” and instead to generate a line of flagship products that on the cards. M&S sets an action plan for
optimise product sustainability, says Cindy have cut their environmental impact by 10%, each product category area. Senior
Drucker, SC Johnson’s director of global managers are then incentivised through
sustainability. Indexes serve as pointers their performance evaluations to meet ever
Following a complex calculation process, more exacting sustainability criteria.
every material is given a rating of between
towards hoped-for solutions, Barry has a piece of advice: if you want
zero (worst) and three (best). The lowest rather than roadmaps to innovation to happen, avoid “micro-
category can only be used when there is no certain futures managing”. Managers should set a vision,
viable alternative, and only then with senior provide some parameters and provide
management sign-off. without impinging on the product’s overall rewards for high performance. The nuts
“[Product scientists] are required to look sustainability profile (see box). and bolts should be left to product devel-
at increasing the ranking of the product P&G is seeking to derive revenue of opers themselves.
each time it is reformulated,” Drucker says. $50bn from these flagship products Internal indexes undoubtedly act as a
This goal of gradual improvement is between 2007 and 2012. With $40bn already handy instrument for in-house innovation.
paying off. When SC Johnson launched its generated, the company is on target. If their impact is to be felt outside the
Greenlist approach, fewer than one in five company, however, then they must be
(18%) products were classified in the top Breadth over depth shared with suppliers. Nike, SC Johnson
two categories. Today, the proportion is Where internal indexes differ from more and P&G are all committed to that process.
more than half (51%). product-centric approaches is in their scope. Ultimately, they must be shared with
By way of example, Drucker cites air Focus on single product lines, and you’ll get industry competitors too. Work is currently
freshener Glade Refresh Air. SC Johnson’s a few exceptional eco-products and a lot of under way at the Sustainability Consortium to
lab technicians switched from liquid petro- dross. Set your sights on systems change, agree some universal, rather than company-
leum gas to create the product’s spray, to and a pan-portfolio improvement should be specific, definitions of sustainable products.
compressed nitrogen. In so doing, they the result. Such moves are welcome, according to
drastically cut the amount of volatile That’s certainly the vision of Marks & Stephanie Draper, director of change and
organic compounds produced. Spencer. The UK retailer is looking to inte- system innovation at Forum for the Future.
Peter White, global sustainability director grate aspects (what it calls “attributes”) of its Internal indexes are helpful as a “vehicle for
at US consumer goods company Procter & Plan A strategy into every single product asking different questions” of a product, she
Gamble, admits that internal indexes are over the coming years. concedes.
“not perfect”. Product innovation is a work- “What we want to avoid is creating a little “Yet what we’d like to see over time is
in-progress. In this context, indexes serve as eco ghetto where you’ve got a fantastic ethical some standardisation of these indexes so we
pointers towards hoped-for solutions, range in the corner of your shop … but it’s a can compare products.” I



8 Ethical Corporation – Subscription Sample Pack Ethical Corporation • May 2012

CEO interview: Paul Polman, Unilever

Sustainable living gets top billing
By Toby Webb, with research by Oliver Balch
At the end of 2010, Unilever launched a series of ambitious targets under the banner of its
Sustainable Living Plan. The man driving that plan is Unilever chief executive Paul Polman

ost chief executives have their “sustainability” way beyond RSPO standards and committed to a no
M patter these days. They can talk as confidently
about Scope 3 carbon emissions as they can about
deforestation policy on a much tighter timeframe
than Unilever’s 2020 target.
Polman knows
he can't
discounted cash flow valuations and the like. Polman is not one for boasting, though. That’s act alone
Yet few understand the subject as much as Paul partly a character thing. He’s refreshingly self-
Polman. Under his watch (he’s been chief executive effacing; not one of your stereotypical alpha-male
of Unilever since January 2009), sustainability has chief executives. His job, as he sees it, “is to make
found its way to the very heart of Unilever ’s everybody else successful”.
decision-making and strategy. But his note of caution goes beyond natural
With the launch of Unilever’s Sustainable Living modesty. There are timescales to consider for one.
Plan in 2010 and his personal trumpeting of “decou- Unilever is only 12 months into a ten-year commit-
pled growth” – doubling economic growth while ment. Polman is conscious that there’s still a long
halving environmental impact – Polman has really way to go. He also knows that eking out environ-
laid down the gauntlet. So how is the company mental efficiencies will be a whole lot easier in Year
faring? One than Year Ten. Unilever:
The Dutchman’s verdict is measured. “Good in brief
progress across the board,” he says. He cites a few Big commitments • Unilever is one of the
early wins. Sustainable agriculture, for example. The sheer size of Unilever’s commitments weighs world’s biggest suppliers
Nearly one-quarter (24%) of all the agricultural on him. To meet the company’s goals on health, for of fast moving consumer
materials bought by Unilever are now sustainably instance, Unilever will need to annually incorporate goods with operations in
sourced. That’s up from one-tenth when the plan 50 million new people into its highly successful more than 100 countries
was launched. handwashing awareness programme. “I don’t think and sales in 190.
Or take palm oil. By the end of 2011, 64% of all we’ve had ever had a year where we’ve added 50 • Consumers buy 170bn
Unilever palm oil purchases were sustainably million people,” he admits. packets of Unilever-made
sourced. The figure should hit 100% by the end of There’s one other salient fact that keeps Polman’s goods every year, and its
2012, three years ahead of Unilever’s target date. rhetoric understated: he knows he can’t act alone. products are used more
Campaigners such as Greenpeace dispute this, Sure, the Sustainable Living Plan gives Unilever than 2bn times a day.
however, pointing out that the body that runs the much to be getting on with internally. Within five • It has more than 171,000
standard for “sustainable” palm oil, the Roundtable years, for example, the company’s 171,000 employees, and
on Sustainable Palm Oil, does not yet meet the stan- employees have pledged to send zero waste to generated sales of
dards of, for example, Nestle’s arrangement with landfill. But the “key changes”, Polman says, will €46.5bn in 2011.
Golden Agri Resources, a supplier that has gone only ever happen “when working with others” on



Ethical Corporation • May 2012 Ethical Corporation – Subscription Sample Pack 9

the macro issues.
For the Unilever head, a collaborative approach
is “obvious”. That’s not to say it’s easy. Take defor-
estation. Polman set out Unilever’s stall back in 2009
by calling for a global moratorium on tropical rain-
forest deforestation. For that to happen requires
governments, multilateral organisations, business
groups and individual citizens to get on board. That
means working with people “at different levels of
speed and under different constraints”. Banging
heads, in less diplomatic language.
Polman knows the difficulties of coalition-
building only too well. For a decade or more,
Unilever has been a leading proponent of “sustain-
ability roundtables”. Some, like fisheries and tea,
have made ground. Others, such as soya and sugar,
are taking their time.
Nothing will shake Polman’s conviction that part-
nership is the way to go. “How do you feed a billion
people who are still going to bed hungry?” he asks.
Answer: not by any one company going it alone. “It
is very clear that … we need to work at industry
level across the total supply chain for solutions.” Paul Polman: biography
The approach is paying off. Indonesia, for Paul Polman, 55, became chief executive of Unilever in January 2009. Netherlands-born, before joining
example, has recently signed up to a two-year mora- Unilever as CEO he was chief financial officer and head of the Americas at Nestlé. Before that, he worked
torium on deforestation. A number of global for 27 years at Procter & Gamble, rising to the position of group president for Europe. He was elected to
commodity traders have also expressed their Dow Chemical’s board of directors in February 2010. He is married with three children.
support for the temporary ban. Campaign groups,
of course, are sceptical that it will be enforced.
it [sustainability] successful outside.”
Keep moving Most seem to need little convincing. Unilever ran
Not that Polman’s happy to let things tick along. an employee survey in the wake of its Sustainable
Unilever currently runs a host of award-winning Living Plan launch. The jump in its “organisational
child health programmes with Unicef and Save the health” outstripped all the other 8,000 companies in
Children in Africa, for instance. Even so, tens of its benchmark group.
thousands of Africans are still dying every day from Next come suppliers. The big players pose few
infectious diseases. “That’s totally unnecessary,” problems. Most are huge companies in their own
Polman says. He went to Africa to see how the right. And Unilever’s buying power is such that
Unilever
company’s partnership efforts could be scaled up. most are quick to fall into line. Goals such as sustain-
Sustainable
Polman’s mild manner and talk of participative able packaging and product redesign won’t happen
Living Plan
approaches should not be mistaken for a lack of overnight, Polman admits, but happen they will. Launched in November 2010,
ambition. At heart, he’s a visionary. Yes, he believes the Unilever Sustainable
strongly in grounding sustainability in the Beyond tier 1 Living Plan commits to
everyday. “It’s important to do the things that you Much harder is engaging the tens of thousands of about 60 targets between
are able to deliver on,” he says. Yet he acknowledges small suppliers further down Unilever ’s supply now and 2020. Key targets
that sticking within the bounds of existing knowl- chain. Three-quarters of the world’s population still include:
edge won’t redress the world’s most pressing works in agriculture or related services. Working • helping more than
problems. with the likes of the Ethical Tea Foundation and one billion people
In that sense, Unilever ’s sustainability plan is Rainforest Alliance, Unilever is experimenting with improve their health
intentionally designed to “stretch” people. “Auda- production models in its tea operations that are both and well-being;
cious” is the word he likes to use most: “It goes “economically viable” and socially advantageous for • halving the environ-
beyond what many companies would call ‘CSR’. It’s small producers. mental footprint of the
really about [building] an equitable and sustainable Consumers, meanwhile, present an additional making and use of its
business model,” he adds. array of challenges. For starters, they’re a fickle products;
To make that model a reality, Unilever has a bunch. They profess a preference for ethical • sourcing 100% of its
checklist of the people it needs to persuade. First off products, yet it’s price, quality and value that agricultural raw materials
are employees. As Polman puts it: “If you don’t have govern their shopping decisions. sustainably.
your employees on board, it’s very difficult to make Polman has no illusions in this regard, saying:



10 Ethical Corporation – Subscription Sample Pack Ethical Corporation • May 2012

Arguably the
real test of his
commitment to
sustainability has
been his 'like it or
lump it' attitude
to Unilever's
shareholders

Highlights:
Unilever’s
Sustainable
Living Plan’s
progress report
• Sustainable palm oil:
target of 100% covered by
Green Palm Certificates
to be reached in 2012,
99 problems?
three years ahead of
schedule.
“We all understand that when a consumer buys some- commitment to sustainability has been his ‘like it or
• Sustainable sourcing: thing, the product needs to perform.” It’s all very well lump it’ attitude to Unilever’s shareholders.
24% of total agricultural saying that our ice-cream cabinets have natural refrig- “There are so many shareholders out there and
raw materials now being erants, he says, but the company’s Magnum still with many different objectives, and for any CEO to
sourced sustainably, needs to be priced right and to taste good. try to please every shareholder is not likely to result
compared with 14% “Consumers are not willing to take a lot of extra in a successful enterprise,” he says.
in 2010. steps to figure out how to live better,” he says. “You Polman works Unilever’s Sustainability Living
• Nutrition: more than have to make it easy for them.” With that in mind, Plan into almost every investor meeting. He refuses
90% of Unilever’s Unilever has designed a consumer-engagement to be bullied by the “ridiculous” short-termism of
leading spreads now approach it calls ‘Five Levers of Change’. The levers the market. As a result, Unilever no longer issues
contain less than one- in question are intended to make sustainability quarterly forecasts.
third saturated fat. understood, easy, desirable, rewarding and ulti- Not that investors are complaining. Under
• Renewable energy: mately habit-forming. Polman’s leadership, Unilever has delivered a total
100% of electricity bought Polman is also a big fan of contextualised shareholder return of 68% over the past three years.
in Europe is now from communications when it comes to consumers. The With figures like that, he could wear a bright purple
renewable sources. company is currently marketing a series of products suit to work and no one would worry.
• Safe drinking water: in South Africa that require less energy to cook. “We That’s unlikely to happen. Polman is a steady
35 million people have don’t talk so much about carbon emissions,” he pair of hands. His future vision for sustainability
gained access to safe states. “Instead, we talk about saving so many rands may be hugely ambitious, but his approach is
drinking water from on your energy bill.” methodical and free of bluster. This soft-spoken
Pureit water purifiers That just leaves investors. Many a chief execu- Dutchman knows what makes business tick, both
since 2005. tive’s resolve has wilted in the face of this sceptical today and tomorrow. Others in the CEO club would
breed. Not Polman. Arguably the real test of his do well to listen. I



Ethical Corporation • July-August 2012 Ethical Corporation – Subscription Sample Pack 11

Standards council was persuaded to restructure the
organisation to become a limited company.
The battle for AccountAbility When Sunny Misser, a sharp-suited
former PricewaterhouseCoopers man from
By Mallen Baker New York, took over in late 2009 he had no
The long-running standoff between AccountAbility and stakeholders of the such reservoir of trust to draw from. You
AA1000 sustainability standards continues. Can some structural changes and new could hardly have pictured a starker
appointments ease the tension? contrast with Zadek, and in Misser you had
someone who unashamedly promoted a
ighteen months ago, explosive disagree- absorbed into other operations, such as the more commercial approach.
E ments over the future of standards
thinktank AccountAbility burst into view
Global Reporting Initiative (GRI).
AccountAbility was a membership
Now the new AccountAbility has
emerged. It focuses on three areas: advisory
when its own standards board collectively organisation, with individual and corporate services, research, and standards. In 2010,
resigned, and the organisation’s management members, and AccountAbility’s forays into AccountAbility reported a turnover of £3.3m,
issued an open letter attacking the propriety commercial consultancy had created with a profit of £189,000. It has offices in New
of a number of board members and “certain tensions with some of its members – even York, London, Dubai, São Paulo, Washington
disgruntled employees of AccountAbility”. DC, Johannesburg, Zürich and Riyadh. The
A bewildering series of claims and company lists its specialist sectors as financial
counter-claims followed. A central fear AccountAbility’s transformation services, pharmaceuticals, energy and extrac-
emerged that the organisation, recently has caused a number of tives, telecommunications, consumer goods,
under new management, was taking a more and food and beverages.
commercially minded course that created a stakeholders to go ballistic It has a newly formed advisory council
conflict of interest for the guardian of the including Sir Mark Moody-Stuart, the extrac-
AA1000 standard. before management changed hands. As tive industry veteran whose CV includes
And today the war being fought in the early as 2007, the organisation’s annual leadership roles at the Global Reporting Initia-
name of better stakeholder engagement report disclosed that those members who tive and UN Global Compact. It has a website
rages on. So what has actually happened in had established businesses providing report you would associate with a budding profes-
the interim, and is there a constructive way assurance using AA1000 feared the potential sional firm rather than what some used to
forward that will preserve the impact of the for the host body to exercise an unfair consider a slightly ramshackle campaigning
good work of the past? advantage against them. organisation.
AccountAbility was set up in 1995 with the The transformation has caused a number
aim of “progressing the professional practice Activist background of stakeholders to go ballistic.
of social and ethical accounting, auditing and While former AccountAbility chief executive A group of concerned former partici-
reporting”. At that time, it had the vision of Simon Zadek has his critics, he was widely pants set up an “AA1000 User Group” forum
becoming the professional body for account- viewed as an intellectual driving force in the hosted on LinkedIn. It became the place
ability practitioners as the sector matured. movement, and with his heart and soul very where intemperate claim and counter-claim
It created the AA1000 set of standards much in the same place as the activist could be exchanged in public in an occa-
covering assurance and stakeholder engage- community. The tensions and arguments sionally astonishing way, and it produced
ment. The early versions were over-complex, were already there, but he had a reservoir of an executive of people tasked by that
but included key principles that have since trust to count on, which came to bear – for community to find a way forward.
become commonly recognised as useful and instance – when the organisation’s advisory At its urging, AccountAbility agreed in



12 Ethical Corporation – Subscription Sample Pack Ethical Corporation • October 2012

June 2011 to set up, an interim standards
board (ISB) to oversee things while it could
regroup and put a more enduring process
in place. It established an independent
nomination committee chaired by Roger
Adams of the professional accountancy
body ACCA, a figure respected by both
sides. This group then identified who
should be on the new board.
The ISB was chaired by Anant Nadkarni,
vice-president for group corporate sustain-

“I no longer considered
AccountAbility to be an
appropriate steward of
the standard”
Paul Scott, corporateregister.com

ability at Tata. It included a number of
people who had been involved with
AA1000, including some of those associated
with the LinkedIn group.
Judy Kuszewski, one of the LinkedIn
group interim executive committee, says:
“We did consider it a success when Account-
Ability agreed to form the interim standards
board to replace the one that resigned, and Stakeholders have accused AccountAbility of a lack of engagement in the past
the nomination committee which Roger
Adams was chairing. But it hasn’t, to date, be able to put the standards in their pocket to the fact that the proposed board for the
resulted in independent governance.” and walk away with them.” The committee new company would have a majority for
In fact, the board became increasingly was behaving as though it was separate to members of the AccountAbility manage-
divided as members of the LinkedIn group the body that had set it up, he says. ment team, therefore undermining its claim
demanded specific guarantees and became Nadkarni is frustrated that the conflict to be independent.
frustrated at what they saw as slow action obstructed progress. “Such standards as And they became increasingly angry by
and lack of communication. AA1000 need to be co-created. They cannot what they saw as the failure to act on
In November 2011, when the AA1000 be produced by one group alone, they need promises – a fact stressed by members of the
Stakeholder Engagement Standard was ready to be co-created to meet common aims.” executive committee to Ethical Corporation
to have its final draft published, members of – and the absence from the dialogue of the
the group went ahead and published it first on Building alternatives head of standards, Kurt Ramin, and chief
an independent website that failed to mention AccountAbility produced a white paper on executive Sunny Misser.
AccountAbility but claimed authorship by the governance for AA1000 in June 2012 which Liv Watson, one of the founders of the
AA1000 Technical Committee (still online at the proposed the setting up of a separate XBRL standard on electronic business
time of writing at http://aa1000ses.net). community interest company (which carries reporting, had been brought into Account-
Naturally this raised questions of intel- specific safeguards under UK law that it Ability at the same time as Ramin to help
lectual property, and whether the group must be focused on community benefit, not put the standards on track. She left after
had gone too far. Some saw it as one of a private profit). The standards would be only a few months, frustrated at what she
series of outrageous moves by the critics vested in this company, and it would be run saw as the apparently unbridgeable gap
that displayed bad faith. at arm’s length from the commercial opera- between AccountAbility and its critics.
ISB chairman Anant Nadkarni says that tions of AccountAbility, even as it received “If [AA1000] is going to have trust in the
such action was completely unheard of, in some financial support from it. marketplace,” she says, “we need to have
all his time of involvement with groups Initially this seemed that it might answer the standard open and free of any conflict of
such as GRI, Social Accountability Interna- many of the concerns. But members of the interest. The infrastructure issue needs to be
tional and the Global Compact. “Some LinkedIn group were critical of the fact that resolved. I don’t think a lot of people will
people were arguing that because they are the plan was being driven through without adopt the standard until this is the case, and
passionate about this area, they wanted to the full agreement of the ISB. They pointed others will simply move in to fill the space.”



Ethical Corporation • October 2012 Ethical Corporation – Subscription Sample Pack 13

IMPAKPRO/ISTOCKPHOTO.COM
through a round hole, and there’s a consensus Adams herself is not undaunted by the
that we can get enough people to the table to task, but believes that the AA1000 standard
create an alternative. We’re looking for a is still worth fighting for. She recalls with
platform where KPMG, PwC and WWF could pride her involvement back in the late 1990s
all contribute, leaving their badges outside when, she says, she had a sense of working
and focusing on the common task.” alongside the leaders in the field.
“My first priority,” she says, “is stake-
Concerns ‘addressed’ holder engagement and sorting out the
Sunny Misser still believes there is everything governance arrangements with the new
to play for and maintains – having consid- standards board. I know we’re not going to
ered the feedback from what he describes as please all of the people, but we can do more.”
“the entire stakeholder universe” – that the She believes that, in the face of some-
majority of concerns are being addressed. times fierce criticism, the AccountAbility
“We have created a community interest team has been able to put some of the
company, and the transfer of the intellectual baggage behind it and move forward.
property of the standards is under way. We In an echo of Anant Nadkarni’s comment
are adding another non-AccountAbility on “co-creation”, Adams acknowledges this
appointee to the board of the company, and is not a task she can do alone. “We really
are happy to add a further one to put the need those who want the standards to work
management team in the minority. to help make them work.”
“We have a nominating committee for
the new standards board chaired by SAI An AccountAbility solution
founder Alice Tepper Marlin and we can Several people supportive of the LinkedIn
state quite unequivocally that Account- group who asked not to be named
Ability does not, and will never, do expressed anxieties about the breakaway
assurance work off the standards in compe- group being set up, which they said ran the
tition with those stakeholders that do. risk of having its vision defined by what it
“We have done everything that has been wasn’t rather than what it was. They still
asked of us.” believed that the best resolution would be
Is he worried about the foundation of a for AccountAbility to sort things out, for all
rival group? Misser shakes his head. He that time was short and trust low.
And others have begun to add their firmly believes, he says, that it is best for This perhaps is the group that Adams
voices to the chorus. Posting in the LinkedIn AA1000 to be supported by a stable organi- will need to win over in the quest to put the
group, Paul Scott of corporateregister.com, sation, with established processes, able to last two turbulent years in the life of AA1000
which has held the inventory of companies bring in the highest-calibre resources with a behind it.
using AA1000, said: “In April this year I gave solid financial input. And although it is clear that some of the
notice to AccountAbility that we would not What about the criticisms of lack of gripes could go away easily if AccountAbility
be continuing with this [arrangement] … engagement and communication? Misser started to deliver promised changes to a
The reasons I gave were, among others, that agrees that this area has not been a success. speedier timetable, some genuinely tricky
Outreach and relationship building had dilemmas will remain. Most specifically – is it
not been one of the head of standards’ possible for a for-profit company to be asso-
It is clear that some of the strengths, and Ramin has since left Account- ciated with a public-good standard without
gripes could go away easily if Ability, Misser says. (Though, at the end of the take-up of the standard being affected?
AccountAbility started to deliver September 2012, Ramin is still listed on the Companies that historically acted as a
company’s website as a “special advisor”.) catalyst for standards, such as B&Q and the
promised changes to a speedier The group is now placing its hopes on a Forestry Stewardship Council over 20 years
timetable new appointment in that particular hot seat ago, accepted that the value of the standard
– Professor Carol Adams. Adams, who was that it was completely independent.
I no longer considered AccountAbility to be was on the interim standards board, has But then, other standards bodies, such as
an appropriate steward of the standard.” been involved in AA1000 since the early GRI and Social Accountability International
Talk in the LinkedIn group has moved days, and a number of the critics had – offer a range of commercial services in
towards the possibility of a new rival initia- unaware of her impending appointment – relation to their standards. And so it comes
tive. As yet there are no specific proposals identified her as one of those supportive of down to where the grey ill-defined lines lie
about how this might be formed. AccountAbility who carried a good track that mark the extent of what AccountAbility
John Aston, managing director of Astoneco record and credibility. can do before it becomes an obstacle to the
Management, says: “We’ve given a team the She will come in with the brief, says future success of the AA1000 standards.
chance to play – but they haven’t performed. Misser, of picking up the ball where it has The answer to that one can only be
We’re going to stop trying to put a square peg been dropped. discovered as events unfold. I



Pressure’s still
on for Asia Pulp
and Paper
By Eric Marx
Campaigners continue to notch up victories against the paper
and packaging producer APP, but it’s a giant company with a huge
customer base – and the rainforest’s trees are still falling

orce the Riau pulp mill to shut down, unfurl the mentalists were taking on the fantastically rich
F banner and try to hold off the police as long as
possible: for the 12 Greenpeace activists hoisted
Widjaja family – owners of the powerful Sinar Mas
conglomerate whose patronage relationships ran
atop the 40-metre-high loading cranes, the intent deep into the heart of the Indonesian government.
was to take the battle to the frontline of Indonesia’s Nevertheless, three years later, the situation has
forestry war. changed. Environmentalists now appear to have the
The aim was to achieve a lockdown – at least for upper hand as a slew of big international, western-
one day – at Asia Pulp and Paper’s largest mill on facing companies drop the now toxic APP brand
the island of Sumatra, and send a message to world whose name conjures up forest destruction and the
leaders gathering at the December 2009 Copen- eradication of orang-utan and tiger habitats.
hagen Climate Summit. By first pressuring Unilever and Nestlé into
“Forest Destruction: You can stop this,” read the cancelling palm oil contracts with APP’s sister
banner. company Golden Agri Resources – also part of the
Beyond those in the environmental community, Sinar Mas empire – forest campaigners successfully
however, few noticed, and among those who did, eliminated one of the two chief industrial drivers of
few thought there would be much impact. Due to the rainforest destruction. Golden Agri chief executive
nature of illegal logging and the lack of transparency Franky Widjaja is said to have seen the writing on
within the industry, it is very difficult to identify the wall: go out of business or submit to credible
chains of custody. And by targeting APP environ-
, third-party monitoring.


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