AEM2550 Midterm

Global Reporting Initiative

an organization that promotes sustainability reporting as a tool to help organizations become more sustainable and help with sustainability development, describes 5 independent asset classes: financial, human, natural, social, technological signalling intent to look beyond ST financial returns and focus on LT success and sustainability by managing these expectations.

Milton Friedman

belief that governments should be strictly economic while governments and non-profits should handle social and environmental issues. the social responsibility of business is to increase profits. say that CR detracts from a corporation's commercial purpose and effectiveness, thereby inhibiting free markets. claim CR is a public relations strategy in which companies clearly pick their good activities to showcase and ignore the others, creating an inaccurate image of a socially or environmentally responsible company.

personal responsibility in food consumption act

cheese burger bill, provides protection from obesity and weight based lawsuits unless the weight gain had been due to violation of state or federal law

environmental content

demonstrate the ways in which your company reaches to protect the natural environment

DOW Jones Sustainability Index

designates top 10% of worldwide companies meeting LT economic, environment, and social sustainability criteria

FTSE4Good Index

designed to help measure the performance of companies meeting a globally recognized sustainability standard.

UN Global compact

developed upon several diplomatic rights and sustainability documents when crafting its list of 10 principles. companies can use this list to generate their corporate responsibility initiatives. is a policy framework for development, implementation and disclosure of sustainability practices and offering participants a wide spectrum of specialized work structures, management tools and resources and topical programs and projects. purpose is to advance business models and markets with the goal of centralizing the initiatives overarching mission of helping to build a more sustainable and inclusive global economy.

factory disclosure

disclosing important supply chain information

4 stages to value creation

do old things new ways do new things in new ways transform core business new business model creation and differentiation

Three pronged approach to preventing greenwashing

impact (make sure its real- messages about environmental issues associated with products must be based on real, significant impact as opposed to being mere PR ploys alignment (build, support, internally and externally)- initiative must be aligned with functions throughout the company. communication- communicate accurately. communication must be clear and transparent, and companies should avoid self aggrandizing in dialogue with shareholders also essential that organizations understand these principles.

generic social issues

important to society but neither are significantly affected by a company's operations nor influence a company's LT competitiveness

responsive CSR

includes corporate behaviors being a good corporate citizen paying attention to evolving social concerns of SH's, mitigating existing or anticipated risks from business activities.

value chain social impact

includes issues affected by the company in the normal course of business

decentralized

incorporations CR into different business units with several departmental leaders being assigned responsibility for CSR in their respective departments

outside director

is a member of a board who is not employed or engaged with the company, do not represent stakeholders, serve as a source of outside counsel on strategy, operations, performance. they may serve on multiple boards of directors, can result in a small number of individuals having substantial influence over a large number of important organizations.

Sustainability risk

is all about what the actual impacts are on the ground. Why is it important to distinguish between the two: because you have to understand the facts, what the actual impacts are. What the reputational impacts are going to be.. that is a much harder question. Green Peace may overestimate the risk.. but you may choose not to do the deal anyway, just because of the reputational impacts, even though you know the actual environmental risks are not that severe.

Global Compact

is of limited impact because it relies on public accounting rather than legally binding mandates but it provides a foundation for industry specific regulation.

green washing

termed by Jay Westerfield corporation's practice of disingenuously spinning their products or policies as environmentally friendly or beneficial deceptive use of green public relations or green marketing. firm level- misleading consumers about a company's environmental practices product level- misleading consumers about the environmental benefits of a particular product or service. sin of hidden trade off, sin of no proof, sin of vagueness, sin of irrelevance, sin of fibbing, sin of lesser of two evils, sin of worshipping fake levels no definition of what qualified as a green product.

workplace content

should center on how innovative actions taken by the company to enhance the EE experience- working conditions, pay, benefits, increased job creation.

real change approch

take what is most valuable to the company and contribute it to the community.

CSR

value = doing good citizenship, philanthropy, sustainability discretionary in response to external pressure (reactive) separate from profit maximization agenda determined by external reporting and personal preferences impact is limited by corporate footprint and CSR budget.

CSV

value= economic and societal benefits relative to cost joint company and community value and creation integral to competition (proactive) integral to profit maximization agenda is company specific and internally generated re-aligns the entire company budget.

The Case of DOW Chemical

• A difficult history of environmental impacts, but a successful history of reacting to a changing more demanding world. • A lack of public trust spurred them into action, and to engage with people who think very differently from us • Sustainability has become part of the DNA of the organization. • DOW invests massively in R&D • DOW Chemical purchased in the union carbine that was responsible for the deaths of thousands of people- DOW has had a history of very difficult environmental issues and strong environmental impacts • For reasons that we could argue about whether it is the succession of strong sustainability minded CEOs that was putting pressure on Executive management, for a few decades they have been a company that has set the pace when it comes to developing corporate responsibility. • What do companies actually think of us? In the process of thinking of this, sustainability has really become part of their DNA. • Much of their investment in RD does not pay out in the short term but rather in the long term. • Leadership, more than managing its, footprint is about delivering new technologies and solutions for world problems • Over time, shift from internal to external • Importance of clear, specific and unambiguous goals, as a manager, you can force the company more broadly into action. • Importance of input and support from the board of directors. Make responsibility goals an element of annual review and comp • Consider tension between short and long term • Also, think about john browne's radical engagement notion o Publishing a book where he talks about radical engagement if you want to have an impact that is both radical externally and you have to engage with those who like you and those who hate you • You can force your company into action by making external pronouncements that you may not be able to get out of once they have been communicated externally.

The corporate responsibility strategy

• A series of recommendations to the company on how to better manage the risks it faces and leverage the available opportunities • Specific, clear, and actionable and drafted as if the readers were the company's senior executives • How the information is organized will be less important than that the recommendations for a corporate responsibility strategy are strategic • In other words, they should help an organization reach its goals.

Milton Friedman

"Do corporations have responsibilities other than to make as much money for stakeholders as possible? My answer is no... they do not." Focused on business with the expense of other factors. He has become the prevailing view of business- legal responsibility towards shareholders and the law and nothing else.

Pete Drucker

"Profit for a company is like oxygen for a person, if you don't have enough of it, you're out of the game. But, if you think your life is about breathing, you're missing something." He was a management consultant. If you are focusing only on profit, you are missing the opportunity to highlight and enhance standing in society, which can itself be beneficial to the corporation. This was a response to Friedman. It was a more open view. Contribution to something bigger to making and delivering profits for shareholders.

Sustainable Development Goals

Adopted by the UN general assembly in September 2015 Provides continuity after the end of the millennium development goals. Unlike UNEP FI and the UN Global Compact

Overall Impacts

Overall impacts: if you take into account both greenhouse gases, CO2 plus methane, primarily, as well as other impacts, displacement of people and social dislocation, biodiversity, contamination, what are the most impactful industries. If you are in the policy sector and you might focus on these impactful industries: oil and gas, power generation, nuclear power, transportation, agriculture and forestry, cement, fisheries, gmos and agricultural intensification. Some say that methane is underappreciated. CO2 is over emphasized in some people's opinion. Land use change has the most impact, even if they occupy a huge amount of land, in terms of greenhouse gas emissions, the real impact is when you go into brazil and clear 10000 hectares to make a new cattle ranch. A lot of emissions are coming out of buildings. Nuclear industry- emit a lot of steam but there is also a lot of greenhouse gas. Every year, literally thousands of coal miners used to die from emissions. Opponents of nuclear power- nobody has died, small number, some accidents, if something did happen, that would be big time. Based on a scare, it would be difficult to re-establish nuclear power. Sometimes, though the power can be better in some instances, there are much higher risks when something goes wrong. What is the biggest risk that we are facing from an environmental point of view Nuclear power requires using fresh water, it is extremely expensive, it lasts 75 years compared to other renewable sources. Not a great investment. But do you really care whether it is a good investment or not? NGOs have switched from saying nuclear is bad.. coal is bad, etc, to saying, since that wasn't working, now they say nuclear is un-economical. This is the newer strategy. Just basing argument on what is good or bad wasn't working. They have had more of an impact this way. Do they care if it's economical or not though if the government is willing to guarantee? Cement- requires a really big kiln to heat up... which is very energy intensive to heat that up, and it releases a lot of CO2 emissions. Twice the amount of the global airline industry to make cement. You have to heat up a mineral and that process occupies a huge amount of electricity. By promoting GMO you are pro-rainforest and whatever other habitats that are being converted into agricultural land. The more there is in a smaller amount of land, the more pressure there will be to expand. Infections... you might be able to keep up more trees but those trees might be more easily infected. Have we focused too much on climate to the exclusion of other issues that do not get enough attention. Hard to measure the offsetting of environmental pros and cons If we produce less food, will we actually have less people? Probably not, probably just more poverty. Some people don't like the way certain food looks... large fruit instead of tiny fruit. We have been genetically modifying organisms (GMOs)- we have been doing this for centuries, but now we do it in labs and more effectively. We have been taking genes from one organism and implanting it into another organism for centuries.. since the stone age. We have to consider whether it is as awful as it is portrayed to be.

Sustainability indices

There are entire indices like the S&P 500 that you can invest into, there is the DOW JONES sustainability index- they look at all the big companies in the world and decide on the basis, which the top 10% of the companies in each individual industry is, and the top 10% of companies, boom, they take that 10% they drop it into an index, you can put money into the index, and FTSE4GOOD index is another one.

Equator Principles

bank response that started to develop, 2003 is when they were approved and got off the ground. Nice illustration of how corporation organizations have reacted to this issue of corporate disadvantage. Lower profile compared to your peers, your competitors

Human rights due diligence

due diligence is something that companies do on other companies before they intend to purchase them. Instead of focusing only on legal due diligence, there is human rights due diligence that is actually becoming more and more mainstream in the business. Weaknesses and criticisms? • Contributions on the part of the countries- there is good intentions but there is not a clear articulation of what the enforcement mechanisms may be • There are some enforcement mechanisms that are not ideal- more relevant in some countries- but they put a little bit more teeth on some stuff. • Is it primarily the role of business to provide jobs and deliver tax revenue to the government, and deliver innovative products that people want • What needs to continue is the broader effort initiated by UN • People will realize the Thun Principles were a good effort but that they need to be tweaked.

ESE

environmental social and ethical

ESG

environmental social and governance a lot of corporations view government issues as left to legal department, left to the board. they more handle the ethical

UNEP Finance Initiative

founded at the time of the UNCED or Earth Summit in Rio in 92 Currently there are over 200 financial institutions that are signatories Signatories belong to three categories: banks, insurance companies, and asset managers UNEP FI based at UN offices in Geneva and has a significant secretariat UNEP FI seeks to encourage the better implementation of sustainability principles at all levels of operations in financial institutions, namely through the incorporation of environmental, social and governance factors (or ESG) in risk analyses - a concept it pioneered in the 1990s

Sustainability risk management

most of these jobs have probably been created in the last decade. In the past, whoever received the inquiry, whether it was Green Peace, or from a shareholder, or asking for someone asking for more accommodations or a change of practices, it was forwarded, normally, to corporate communications. The fear of competitive disadvantage affected how companies behaved and what they do. This is a large driver in what companies do, it builds on the concept introduced in the pyramid.. everyone does it, everyone has to go by that minimum standard. Anything above that is not required by law. There have been very concrete steps that have been put in place to address this issue of being at a corporate disadvantage, sticking out your head at risk that you may be the next to be sliced

Corporate responsibility

one interpretation- corporates have a responsibility to those groups and individuals they can affect. i.e. its stakeholders and society at large.

Corporate volunteering

people doing things that are not what they are trained to do. Law firm volunteers its legal skills for a good cause- this is the modern take on corporate responsibility- still not central to their business.

C Corporation

the average mainstream normal corporation.

Form 20-f

the equivalent of the form 10-k but for foreign companies that have registered with the SEC, which allows them to have their shares traded on a US exchanged- dow jones, NASDAQ Purpose: to ensure that investors can evaluate foreign companies alongside US based companies in a fair and standardized manner; nevertheless, certain requirements are watered down A company is only eligible to file a form 20-f if fewer than 50% of its shares are traded on a US exchange; if more, then it has to file a form 10-k

Limited Liability

the shareholders of a corporation are shielded from prosecution and liability for the losses of the corporation itself

rate the raters

they went out and rated each of these rating agencies in terms of quality of their methodology, penetration, reputation in the field. This is a 5 phase study

Stakeholders

usually defined as customers, suppliers, employees, communities, and shareholders and other financiers.

Corporate Disclosure:

• Generally the result of the close collaboration between the corporate communications, finance, and legal and compliance functions of a corporation, working closely with external auditors and external council. • The basic reporting documents for companies listed in the US are the form 10-k (for US companies) and form 20-f- for foreign issuers • Subject to the requirements of regulation S-X regulation, S-K and other regulations issued pursuant to the securities act of 1933 and the securities exchange act of 1934 • Companies may stand or fall on the quality of disclosure. • The fundamental basic document for companies listed in the US is the form 10-k, if you are a foreign company that has listed shares or securities in the U.S. Form 20-f and 10-k grew out of regulations issued pursuant to the securities act of 1933 and 34. The two laws that have the most influence on how business is done in the united states- the disclosure that is required by the securities act and the securities exchange act- may be the downfall of many a company which did not take its disclosure seriously enough.

International Integrated Reporting Council (IIRC)

• Global coalition of regulators, invesors, companies, standard setters, the accounting profession and NGOs • Mission: to establish integrated reporting IR and thinking within mainstream business prctices as the norm in the public and private sectors • Formed in 2010 by the prince of wales accounting for sustainability project the global reporting initiative and the international federation of accountants • The IIRC released its IR framework on December 9th, 2013, it marked an important milestone in the market led evolution of corporate reporting.

Designing and Implementing a Corporate Responsibility strategy

• Need for a clear understanding of: o Geography • Where is the company headquarted? What jurisdictions does it operate in? are there particularly risky locations? • What are the expectations of the local stakeholders? • Risky? One issue for example is enforcement- is enforcement an issue in that jurisdiction • Cultural issues in that jurisdiction that you need to consider • Are there specific risks about that jurisdiction o Industry • What is peculiar abut this industry? What challenge are particular to this industry? What is the regulatory environment? • What are the risks that are inherent to that industry • Ex. Fishing- one of the big issues of fisheries is forced labor, essentially slave labor in fishing boats in international waters, very few people know about it but it is imdemning. o Company: risk and opportunities faced by the company itself • What is the history of this company? Who are its clients? • And its other stakeholders? • In terms of the company itself it should be pretty obvious. You need to know how to build upon what they have done and strengthen what they have not done in order to strengthen their corporate responsibility.

Global Reporting Initiative

• Reporting framework for sustainability performance disclosure • Substantial organization with well resourced secretariat, with headquarters in Amsterdam • 93% of the worlds 250 largest companies issue a CR report, of which 82% apply GRI guidelines to their reporting • As of 2015, 7500 organizations used GRI guidelines for the sustainability reports • Helps businesses, gvoernments, and other organizations understand dn communication their impacts on issues such as climate change, human rights and corruption • Forced by the us based non profits, ceres and tellus institute

Why focus on the risks?

It goes way beyond the brand. Interbrand does not but look at brand and provide consulting services on brand issues. They have quantified the financial value of different value. Apple... is worth 170 billion dollars. Reputation is not just a nice to have, it represents a huge amount of value for companies. If the brand is impacted, that has a very direct impact

Corporation communications

It is difficult to exaggerate the importance of corporate communications in today's business world- particularly when a corporation has a retail client base The public policy impact of a strong corporate communications function is big- policy responds to public perception The ability to tell a story, to put a corporation's action in the best possible light, is highly valued, as is the ability to see through the spinning if you are customer or a regulator. (not lying- just best possible light given the facts and circumstances- gift of gab or good writing skills- this is hugely important to corporate organizations, as are the people that are able to see through the numbers and the story This is especially true in the financial services sector- but why? • It is difficult to exaggerate the importance of corporate communication's in today's business world- particularly when a corporation has a retail client base • The public policy impact of a strong corporate communications function is big- policy responds to public perception

The Precautionary Principle

When in doubt, err on the side of being conservative In some jurisdictions, it is a legal requirement to apply the precautionary principle It has also been built into the UN Global Compact In our best interest to take a precautionary approach. Not impose changes on natural habitats, not play with nature the way we have mindlessly done so in many cases up til now.

Status quo

While the academic debate continues about i. the ownership of the corporation and ii. Whose interests the officers and directors of the corporation should serve, in the business world there is currently little debate. Officers and directors in the corporate setting today behavior for the most part in a way that seeks to increase shareholder value. In practice, it is more complicated with the analyst community having a huge influence, and other stakeholders have more of less influence. And of course the duty of loyalty is not always fulfilled.

Warranty of merchant ability

when you buy a car, you expect the air bags to work- but what about when people get hurt and die and nothing really failed it was just a car crash. We know precisely how many people are going to die in car crashes next year, give or take a tiny margin of error. Volvo knows how many people will die in Volvos in the US. They are condemning "x" number of people to die in 2017.

successful social sustainability metrics

1. used throughout the company 2. measured frequently with adjustments made as necessary 3. performance tracked based on stated points 4. audited externally 5. capable of being benchmarked internally and externally 6. user friendly and meaningful 7. balanced cost, benefits increasing and reporting and acknowledging results

first two principles of UN global compact addresses human rights

1. businesses should support and respect the protection of internationally proclaimed human rights 2. make sure stye are not complicit in human rights abuses the UN global compact is the predominant set of standards applied to corporate behavior regarding human rights but: there is a lack of definitional clarity on several key concepts lack of clarity on the distinct duties of corporations and other enterprises as opposed to nation states limited guidance regarding how to increase and report on compliance with these principles lack of penalty for failing to adhere to these principles beyond being delisted for failing to file annual reports./

4 levels that corporations can use to determine short, medium and long term value from their CR initiatives

1. cost leverage- ways in which sustainability can be used to increase cost savings 2. risk reduction- includes the management of long term and short term risk 3. options creation- corporation's ability to develop new operational methods, identify untapped market opps, and deliver on emerging stakeholder values 4. stakeholder preference- cultivated by developing strong preference w relationships w stakeholder

Triple win through innovation in product development and production processes

1. creating competitive advantage in the marketplace 2. delivering new value to consumers 3. transforming economic systems.

Process of becoming sustainable

1. viewing compliance as an opportunity 2. making value chains sustainable 3. Designing sustainable products and services 4. developing new business models 5. creating next practice platforms 1. commitment to sustainability must start at the top of the organization 2. beyond top leadership, the people within organizations matter

5 step process in corporations to use in implementing strategic CR progress

1. identifying societal issues that affect the firm and ways to address them that will translate such issues into an acceptable advantage 2. menu of CR program options that could be used to create opportunities associated with the first step 3. firm should performance analysis of the program options identified in step 2, considering both environmental and societal impacts, along with other variables specific to the corporation 4. implement the best CR program based on step 3, involve coordination with other entities such as outside organizations or complementary sectors 5. firm must resolve financial and social outcome and report the progress results to both internal and external stakeholders 1. CR strategy definition- corp decides where to focus CR efforts, how to refer this to specifications, how to drive engagement at the top levels of the organization 2. driving internal change- figuring out how to rally employees effectively to support those efforts and to institutionalize the focus into decision making 3. Partnering with External Parties- deciding which organizations to collaborate with, figuring out how to form agreements, determining how such partnerships will help and identifying pitfalls to avoid 4. Measuring and reacting- developing a robust system for monitoring performance and determining how to leverage positive results to adapt when targets are not met

drivers of greenwashing

1. increased consumer demand for more environmentally responsible products 2. rising sales of environmentally friendly products 3. continued strong demand for green products despite economic downturn 4. pending regulation and government action. 5. lack of standards for communicating environmental messages

Meaningful integration of CSR strategy

1. introduce a central CSR function 2. identify an external measurement standard that it can use, under the guidance of the top CR manager to develop a code of conduct and basis of benchmarking the firm's CR performance 3. educating EE's about CR concepts

3 main pillars to creating the business case for CR

1. national capital- natural resources that humans considerable valuable, vulnerable, scarce, fragile, irreplaceable enough to justify investments in monitoring 2. economic capital- produced assets that can be assigned monetary value 3. social equity- trust, networks that people can draw up to solve common disputes/problems

Inhibitors

1. not enough return on investment 2. consumer unwillingness to pay a premium for given products or services 3. difficulty evaluating sustainability across the entire life cycle of a product 4. lack of commitment from senior leadership 5. insufficient government incentives 6. internal opposition or lack of consensus 7. supply chain resistance

John Ruggie- published the tripartite framework on the duties of TNCs and national governments regarding human rights

1. states have a primary duty to protect against human rights abuses by third parties including TNCs 2. TNCs and other businesses have a duty to respect human rights 3. access to remedy much be made available to victims of human rights abuses no clear distinction between duty and responsibility

Sarbanes Oxley act

11 titles intended to set new standards for U.S. public accounting firms, public company in response to the scandals and in an effort to restore public and market confidence in businesses requires senior execs to take responsibility for the completeness and accuracy of corporate financial reports. enforced the principle that SH own our corporations and that corporate managers should be working on the behalf of SH to allocate business resources to their optimum use.

evolution of Environmental responsibility

70's- zero sum game between environmental responsibility and business 70s-mid 80's- some resistance to adoption, compliance spurred by increased regulation. delegation of environmental protection to local facilities 80's- focusing more on underlying causes, focus shifted from assigning punishments to preventing such offenses in the first place mid 80's-90's- conversations about win win solutions and eco efficiency 85- regulations grow increasingly focused on environmental results vs. compliance thinking strategically about outcomes 90's- managers begin to understand that better performance could affect a corporation's bottom line. late 90's- moved increasingly toward eco-effectiveness and the idea of a growing revolution.

WorldCom

CEO secured loans for substantial personal holdings using his WorldComm stockholdings as collateral. As WorldComm stock fell, Embers received margin calls to provide additional margin. BOD granted loans and guarantees to ensure that Embers would not be forced to sell his shares. coMPANY Execs artificially inflated the financial profitability and growth of the company in an effort to increase the price of World Comm's stock. through various accounting methods, masked the deteriorating financial position of the company. extremely passive board that was unaware. allowed embers to reign uninhibited. audit committee barely scratched below the surface of financial reports while compensation matters were usually decided by the CEO himself rather than by a comp committee.

ESG

E- climate change, product issues, opportunities and management S- community social involvement, diversity, EE relations, human rights, products E- reporting, structure

3 Key ways that CSR can create value

Growth Return on capital risk management

Third Generation CR

Integrated into culture integrated into innovative cycle integrated into marketing and leadership development integrated into performance management and compensation differentiating and identifiable to EEs, customers, suppliers and consumers Integral to mission and strategy Provide opportunity and focus leverage unique strengths

First/Second Generation CR

Risk management or mitigation Commitment to reporting environmental health and safety measures annual performance targets community relations strategy transparency surrounding workplace and ethics CSR and sustainability governance material assessment stakeholder engagement branding and marketplace programs

Dodd Frank

SH vote on an future adoptions of golden parachutes in publicly traded firms.

Process to becoming sustainable

Step 1: drivers: internal motivators, external motivators Mapping, Step 2, 3,4 CSR Isuses Key Stakeholders Functions and departments that support CSR effects Analyze Current Sytems Step 5: Current System, Current Culture, Impending changes Structure Design Step 6,7,8,9 Structural Options Staffing Cross functional interaction Budget/ resource allocation

marketplace content

illustrates how your business has integrated responsible entrepreneurship into practice disclosure of pertinent info offering fair pricing adhering to marketing and advertising ethics giving attention to consumer rights

Sustainability Development Goals

UN Rio +20 Summit in Brazil in 2012 committed governments to create a set of sustainable development goals (SDGs) that would be integrated into the follow up to the millennium development goals after their 2015 deadline. twin priorities: protection of earth's life support system and poverty reduction 6 SDG's with provisional targets for 2030. growing affluence and the right to development among the world's poor demand the people of all nations make the transition to sustainable lifestyles. sustainable development- development that meet the needs of the present system without harming future life. Combined these with MDG targets, updated and extended for 2030 to produce 6 sag's: thriving lives and livelihood, sustainable food security, sustainable water security, universal clean energy, health and productive eco systems, governance for sustainable societies. People (updated MDGs)- end poverty and hunger, universal education, health, gender equality, environmental sustainability and global partnership Planetary must haves- nature use, clean air, nutrients hydrological cycles, ecosystem services, biodiversity, climate stability.

Redefine corporate governance

a system by which companies are strategically directed, integratively managed and holistically controlled in an entrepreneurial and ethical way and in a manner appropriate to each particular context. the way in which corporations are governed and to what purposed. concerned with practices and procedures to ensure that a company is run in such a way that it achieves its objective. could be to maximize the wealth of owners subject to various guidelines and constraints with regards to the other groups and with an interest in what the company does. guidelines and constraints = behaving in an ethical way and in compliance with laws and guidelines. SEC requests that publicly traded companies disclose information detailing how executive compensation amounts are decided.

B Corps

companies that meet rigorous independent standards of social and environmental performance, accountability and transparency differentiates your brand, maintain a mission, save money, particularly via partnerships and discounts negotiated for members by B lab, generate press, attract investor,s, improve and benchmark performance and build a movement. B lab has taken its mission further and is working with state governments to legitimize the B corporation as a legal incorporation option. Believes the current corporate law makes it difficult for businesses to consider employees, community and environmental interests when making decisions.

License to operate

companies want to avoid interference in their business through taxation or regulation. they may be able to persuade governments and the wider public that they are taking actual issues like health and safety, diversity and the environment. they can avoid intervention. expenses today can result in future cost savings and increased revenues.

spare change approach

company makes x$ and they give their spare change back to the community, with the goal being generosity

Tyco

company went through series of mergers and acquisitions that resulted in the creation of a mega international conglomerate that exceeded wall streets expectations and allowed the company to achieve the largest earnings and stock prices in the company's history SEC filing revealed the a former Tyco board member has been paid 10m fee and a 10m donation to his charity for assisting in an acquistion of CIT group. CEO and CFO sold more than 100M of their stock the previous year even though they had public statements saying the contrary. CEO had an opulent lifestyle that was funded with company money. K's accusation that Tyco's BOD was aware of his compensation and spending raising questions of the efficacy of the traditional model of governance.

golden parachute

compensation and benefits received by execs as a result of a merger or takeover offer. not tied to performance and have been rewarded even when a company lost millions and terminated EEs.

community content

concentrate on any company supported volunteer activities by owners and employees, charitable donations or sponsorships and ways the company promotes economic regulation

civil watchdogs

consortium of civil society organizations should appoint a pact of well respected global leaders, supported by a small but properly respected secretariat, to monitor the policies and practices of pharma companies and hold them publicly responsible for the discharge of the right to health responsibility.

eco effectiveness

enable business to operate in a manner that allows nature and business to succeed, to be productive, the objective being for business to seek a glance with nature in such as a way as to remove negative impacts and to develop systems to restore and enhance the natural environment. requires industry to re-invent itself

social dimensions of the competitive context

factors in the environment that affect underlying discourse of competitiveness where a company operates

Fair Labor Association

industry specific regulation organization with he goal of promoting respect for labor rights and the world. addressing worker exploitation- forced and child labor. companies are asked to establish a clear written workforce standards for their suppliers which serves as a means of managing supplier risk. FLA then monitors compliance w its labor standards through data collection and audits soliciting info from parties including corporate employees as well as labor, human rights, and religious organizations. org operates as a mediator, using independent 3rd party monitors to audit corporations according to its regulations and the monitors are paid by FLA USES remediation instead of relinquishing membership code can be very confusing to suppliers discrimination has been used to limit success

board of directors

is a body of appointed or elected individuals who cooperatively oversee a company, institution, organization in a publicly traded company, the members of the BOD are elected by the shareholders. consistent set of responsibilities: operational oversight, risk management/accountability, executive recruitment, performance, compensation since corporate scandals of 2000s, the amount of responsibility placed on a board of directors for the oversight of a publicly traded company has increased dramatically board members often have an incentive to look the other way when CEOs abuse corporate funds- sit on each others boards, directors firm may be employed by the CEOs firm in a consulting capacity. in the wake of 2007 crisis- revealed that many top execs were highly compensated even in cases when the company's exec did not lead the company to perform well financially

eco efficiency

linked business efficiency with environmental sustainability promotion of industries and occupations that would use resources efficiently generate less pollution and waste rely on renewable resources and minimize negative effects on both human health and the environment. meant that companies would work to update their machinery with cleaner faster quester engines, without negative impact on financial prosperity Rio Summit saw the birth of this eco efficiency disguised the most pressing, most difficult to solve environmental challenges by focusing on those with quick pay backs and no need for significant re-engineering of operations, left some with he mistaken impression that all business resource efficiencies were environmentally sound. unsuitable as a LT strategy. didn't focus much on shared value- mitigating the destructive effects of their behavior, instead of initiating widespread changes that wold eliminate such effects

Enron Corp

long standing and methodical accounting fraud that overstated the financial position and earnings of the business had lucrative consulting contracts with many of the firms that were auditing, incentivized auditors to look the other way. relationship of corporate execs with BOD and external auditors

syncretic model

looks not only at the link between cr activities and financial performance but instead expands its scope to include both direct and indirect relationships between long run and firm performance, allows a firm to identify and exploit opportunities that exist outside the business case's purview.

Business Case Model

looks only after specific benefits of CR that have a clear impact on a firm's financial performance

Corporate responsibility

manifestation of a corporation's social and environmental obligation's to its constituencies and greater society. describes an organization's respect for society's interests, as demonstrated by its taking ownership of the effect its activities have on key constituencies including customers, employees, shareholders, communities, and the environment in all parts of the operations.

corporate social performance

more in line with syncretic model to evaluate CR an umbrella term that includes both descriptive and normative aspects and incorporates all facts of firm success related to corporate responsibility initiatives.

strategic CSR

moves beyond good corporate citizenship and risk mitigation, seeking instead to identify strategic CR initiatives w sizable social and business benefits, creates opportunity for shared value

inside director

one who is a high ranking EE, large SG who is intimately connected to the organization, have special knowledge of the inner workings of the firm, financial marketing, strategy. typical inside directors include CEOs, major shareholders, reps of other shareholders including major lenders.

subtle forms of discrimination

people categorize others based on warmth and competence- warmth is a matter of positive or negative intentions, competence involves a person's effectiveness. a person's race, gender etc tend to affect a lot of what others think of them could deny workplace recognition based on this. warmth x variable, competence y variable discrimination in major events and every day activities

shared value

policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the community in which it operates. ways to create shared value 1. Reconceiving products and markets 2. redefining productivity in the value chain 3. enabling local cluster development- geographically concentrated sets of firms, related businesses, suppliers, service providers, logistical infrastructure in a particular field

common use consumption laws

prohibit people from suing food purveyors for making them fat, giving them diabetes, or adding to their high blood pressure

centralized

single head of CSR department who is responsible for the design development and coordination of CSR activities within the company.

Equator principles

some banks that would like to go further and some would like to be more timid- this results in a stalemate or consensus view. there could be a tiered system- more ambitious banks can hold themselves to a higher standard on climate change. OR state explicitly that climate change risks are not addressed in the principles.

environmental responsibility

the duty that a company has to operate in a way that protects the environment. friendly actions not required by law also referred to as going beyond compliance, the private provision of public goods or voluntarily internalizing externalities.

corporate governance

the process by which corporations are made responsible to the rights and wishes of shareholders corporate scandal and financial crisis that give rise to the movement to re-think the very principle of corporate governance.

Special case: banking

Banks produce, comparatively speaking, very modest emissions But are they responsible for a lot more than what they directly emit? Are they rightly responsible? Should they be blamed? The bank as the one who is hiring the service director then you can feasibly make those scope 3. But what about the leverage that comes from the client/customer the one with the cash in hand disappears. You can decide who to hire or not to hire anyone at all. But when someone hires you, your ability to change the course of events is limited. Banks finance a lot of activities that make emissions.

The corporation

Basic elements of governance This is the basic structure of business. The sole-proprietorship exists and the partnership tends to still be a dominate model in some professions such as accounting and law. Today, the vast majority of business is done through the corporate form and the corporation. Corporation- headed by a chief executive officer who reports to the BOD, appoints management, and is responsible for day to day running of the corporation. BOD- board of directors appoints the CEO of the corporation, oversight over key responsibilities of the corporation like audit and risk management, they are a group of part time people, oftentimes lawyers or academics, or former senior managements who are there to key an eye over the corporation. They often choose CEO salary Shareholders- shareholders elect the board of directors, amend bylaws, and own the shares of the corporation, not involved day to day

Holding Corporations Accountable:

Besides soft law instruments Internal regulations- company codes Domestic law- alien tort claims act How do we make sure that corporations actually do consider these human rights guidelines. There are the internal guidelines that companies develop- these internal guidelines, yeah they are nice things but they have no strength, no voice, no real impact on the real world. When push comes to shove, the economy is not doing well, it may be very impactful for the human rights point of view, you have to be careful about what clients you work with to make sure that the human rights principles are not violated on the group. But they are just guidelines... they are voluntary. Sometimes people refer to them as soft law- what gives them the power to really influence the actions of companies- is whether they get out into the open. Once you put something out externally, for NGOs, media and the public to look at- when you look bad they look good, exposing the abuses of the corporate sector- it's good for their career. Once something is out there, the moral weight and the fear of reputational impact, of having these guidelines out there is much stronger than people realize. Domestic law- human rights that is actual law and that can actually have an impact.

Why would a modern company practice corporate sustainability?

Corporate Responsibility in Practice In practice, the debate about the ownership of the corporation is not a focus for corporate managers We do business and we hold ourselves to whatever standard is required by law. Rather, there is in general an implicit assumption that corporations need to be viewed as holding themselves to higher standards than what is required by law. However, the extent of this difference varies enormously depending on geography, industry, client base of the corporation. There is a little box labeled corporate philanthropy and that's how we donate some money to the community, we can tell our shareholders that we are not doing something completely nasty, we get a photo op with the CEO. Perfectly good.. but completely disengaged from the mainstream business of the organization. No impact on the day to day decisions about how to do business, what processes are going to be in place, whether they are going to spend extra money to put in place better systems for waste management or to reduce pollution. Wanting to give back to society. The corporate responsibility element. Corporations no longer feel that they do the minimum required by law and donate a little. There is an assumption (esp if you are a multi million dollar corp) that if all you do is what is required by law, this is not acceptable. Differences are huge in terms of this central principle. Most MNCs realize if unless they are going to take a huge reputational hit, obeying the law and having a philanthropy function is just not enough. You need to realize up front that that is what has happened. But a lot of MNCs don't like this. Companies in all markets mostly hold themselves above the minimum standards. Where the corporation is based and where its shareholders and managers are from, because if you go to northwestern Europe, standards are going to be higher in terms of where they hold themselves. (Not the laws.. but what the corporate entity will hold itself to in terms of a standard) Unilever will be higher there in the US which will be higher than other places.

License to operate in society

Corporate sustainability includes being consistent with ethical principles and conduct such as honesty, integrity and respect for others. By voluntarily accepting responsibility for its actions corporations earn their license to operate in society. Business people are sensitive to this language.

Sustainability ratings assigned to credit Suisse since 2014

Credit disclosure project- some said what are the yearly emissions, want them quantified and measured and they are going to make them available on the websites. Most big companies provide a disclosure to CDP about he emissions are. If you are an investor, you can look at this, maybe because of your personal values or because of your pragmatic issues. MSCI Research intangible value assessment Oekom research: c-medium Sam, environmental dimension, social dimension, economic dimension

Externalities

Externality is the effect of a transaction between two individuals on a third party who has not consented to or played any role in the transaction between those two individuals There are costs to be minimized at every turn, at some point the corporation says let someone else deal with that, let someone else build the roads, let somebody else have those problems and that is where externalities come form. Let somebody else deal with that. Corporations are designed in efficient ways to achieve certain objectives. The enterprise has within it those characteristics that enable it to do what it was designed to do. Costs of the unknowing public.

Future of Corporations and Human Rights

- Institutional and activist pressure increasing, leading companies to adopt human rights policies - Legal pressure- mandatory human rights disclosure requirements - Guiding principles 2.0- sophisticated and precise human rights systems. Something we will see more is a development of legal requirements that banks do the due diligence and continue to disclose more and more about the work that they are doing in the space. In terms of the guidance principles that we talked about, there is likely that there will be a 2.0. it is likely to really build on what is out there and strengthen these standards.

Corporation vs. Partnership

- corporation is one in an organization in which there is limited liability, the shareholders are not responsible for the losses of the corporation and the ability in case of insolvency of the debtholders is limited to the assets of the corporation itself. In a partnership, if you are a partner in some law firm, there is no limit to the ability of someone suing the partnership of getting access to your assets. If any partner is solvent, the partnership is solvent, if you are suing a partnership, you can be well beyond the assets owned by the partnership and you have recourse to suing the individuals themselves. If that exposes the partnerships to liability, why would anyone organize as a partnership? The tax treatment of a partnership is better than the tax treatment of a corporation. There are now hybrid forms of organization like LLC, where there is treatment for purposes of taxes that is similar to partnership but there the liability limitations are those of the corporation.

Infrastructure Projects

- large scale, public usually, projects that have or in certain situations have certain environmental and social impacts. Highways, large plantations, massive amounts of financing. We can see environmental and social impacts massively

The fear of competitive disadvantage

- surprisingly little has been said about this issue, but the first mover disadvantage crates severe disincentives to corporate action on sustainability issues. Success and failure in the business sector are, to a great extent, assessed on the basis of comparison with competitors Actions consistent with corporate responsibility that result in a negative impact on comps can impacts share price and end a career One solution: coordinated industry action, it creates a safe place for competitors but what prevents more of it. If you follow a different course that is higher cost, or less revenues, this can be professional suicide. If the entire industry, the share price of the entire industry, either external factors or because the entire industry decides to take the moral high ground, at once, in concert, than everyone will have the same impact. The problem is, if you're the first one to do this stuff, boom, you're dead. But if the entire industry decides to follow a particular direction, it doesn't matter because everyone else is doing and you are not going to stand out as the one who did the right thing but the expensive thing. Not all actions that involve doing the right thing necessarily result in increased costs. Careful energy efficiency programs can be 100% beneficial for companies. Careful industry audits that results in reduced industry costs can be beneficial, good for rep, can put it in reports, but there are a lot of things that are not so easy or so nice or can be as easily organized. It is all about "comps" if you want to keep your job. Don't want to be the CEO who was chopped. Don't want to be compared unfavorably to the competition. When you get organizations that normally compete against each other to say, let's do this thing that is normally not required by law, but let's all agree to do it, because it is going to be in everyone's benefit. One of the more prominent examples is the equator principles. Key example of industry examples that results for benefits for all at the table, advantages for the company and broader societal advantages and impacts, despite the fact that they are normally competitors.

The responsibility towards consumers

- what duties do corporate entities owe to their consumers in connection with the use of their products. - An still more difficult, what duties do corporate entities own towards third parties that suffer the consequences of the misuse of their products - Is it caveat emptor- let the buyer beware? o Ex. You go out to a bar. You drink too much and you hurt someone. The person who was hurt can go back and sue the owner of the bar if the owner of the bar or the employees served alcoholic beverages to someone who is visibly intoxicated. If.. when the sale took place, the consumer was already visibly drunk. How are you supposed to know that this person is a driver? - An early illustration of the issue is the existence of dram shop laws, which are in place in 30 U.S. states - These laws hold bar owners liable for damages suffered by third parties resulting from the sale of alcohol to intoxicated customers.

Drivers of Corporate Responsibility

-fear of reputational impacts - this is something that banks do not like, Recent NGO campaigns directed at banks, environmental and social issues are making the headlines all over the world. So what you might argue, a few bad headlines? Mining company.. what is the value of the brand of a mining company? You have a retail brand that you need to worry about, it turns into real business. -communications, including social media -affluence- if you have food on the table and good shelter, it is easier to do stuff that you might not otherwise do if you are pre-occupied with your basic needs. -market potential, especially among millennials regulatory risk management (the laws today may not be the law's tomorrow. You should not make investments thinking that nothing is going to change.) If all you do is obey the law and obey the law today, that may put you in the realm of corporate law today but it could put you in a bad position later if the corporate laws change. If you are regulators, if the people who pass laws and regulators view you, or your company, as irresponsible, you are more likely to be regulated. The Dodd Franks of the world, a huge body of regulations, led by Senator Dodd or representative Frank, has made life very difficult for banks. Tobin was one of the lone voices who said that CEOs of banks need to show more contrition. If they say that they shouldn't have been doing business that was so potentially risky, would go a long way. Jamie Diamond complained about regulations, and said that things were not a big deal. The US Financial services industry got slapped with a lot of new regulation that has made it difficult for it to do business. Get rid of entire business lines that no longer made sense in line with the new regulations. You manage your regulators by acknowledging your mistakes and giving them the piece of mind that you have learned from them. Not enough of that in the financial services industry in 2009/10 Never show your cards, but corporate entities are terrified of the green pieces of the country picketing. There is the related fear of the media. Particularly now social media. Generally speaking, most research highlights the fact that affluence and good management of environmental and social standards are highly correlated.

Collective Bargaining

AFL-CIO American Federation of Labor and Congress of Industrial Organizations: China does not yet meet international law standards In 2006, the all china federation of trade unions ACFTU- the government affiliated and only legal union- led a campaign to unionize Walmart retail stores Critics say the unionization of China is superficial and has not led to substantively improved conditions for workers. In China, the union representatives are appointed- and not by the workers. In the US, unionization is difficult. Walmart is one of the best known examples. But, there are others. But closer to home, some of the largest employers make unionization difficult. Walmart, the largest private employer in the US, has been known for resisting efforts by its American workforce to unionize Nonetheless, in early 2015, Walmart implemented a program to pay its workers more.

Form 10-k

Annual report required by the US SEC: company's financial performance summary Unlike the glossy annual report to shareholders, form 10k is more detailed and black and white, makes comparison year to year possible due to its consistency Must be filed within 60 days of the end of the fiscal year Details include: financial statements, company structure, executive compensation

Sustainable Development

Can be defined as development that meets the needs of the present without compromising the ability of future generations to meet their own needs. If you don't take the environmental and social factors into consideration you may end up hindering your economic performance later. From the UN Brundtlandt Report- lead up to the Rio Summit of 92, in that build up to Rio in 1987 this definition was put forward about sustainable development. much of current economic activity is not sustainable. does not consider the fact that some things should be maintained over the long term.

Communications, Reporting and Disclosure

Communications- a general term Reporting- often refers to regular information that is made public by a company Disclosure- this term is normally sued in the context of legally required information Some related concepts- Integrated reporting- consideration of financial and non-financial factors Sustainability reporting: an element of integrated reporting

B Lab

Concerns about corporations overly focused on shareholders to the exclusion of stakeholders led to the founding of B Lab B lab is an organization that provides a certification to corporations that it is run according to the principles of social and environmental responsibility. Such B Corps are certified to consider the interests of employees, communities, and the environment in addition to shareholders However, in a number of US States ordinary corporations aren't even allowed to consider the interests of other stakeholders. One of the founders wanted business to be managed in a way that was a little bit more accepting of the notion that other stakeholders need to considered when managing corporations. B Lab has gotten a large number of companies to rally around the notion that the single minded focus of delivering value to shareholders has probably had a negative impact on the ultimate ability of business to be positive to society. Signing up and getting the B lab certifications... usually small mom and pop corporations that have real value and do good things but they are not going to move the needle of the business sector broadly. Patagonia is a B Corp. In terms of making a dent, they have more of a psychological impact that they have of trying to get businesses to behave in a way that gets businesses to consider the interest of other stakeholders in addition to the interests of their own shareholders.

Triple Bottom Line

Do we have to make trade-offs? This is a triangle diagram. One tip- Economic performance "profits" Second tip- Environmental responsibility "plants" Third tip- Social solidarity- "people" "Profits, plants, people" Economic activity has to have benefits that are economic, social and environmental. If the corporation is only thinking about the top element, it will lead to destruction. Will be caught in a market that is evolving quickly- consumers are looking at the societal impacts of corporations and whether they are positive or negative. They will lose their employees and license to operate if they focus only on profit. Triple bottom line in practice doesn't resonate with business. Hasn't been that effective. More to do with corporate law today. Prevailing understanding is that corporations have a responsibility to deliver profits to shareholders and little other responsibility other than that. Concept of triple bottom line resonates on a personal level but not in practice.

Alcohol Tobacco and Firearms

Does the manufacturing facility have any say in how much a person uses a product or how? Vs. the bartender who is directly giving the product to the consumers. The middle man makes the difference. Reasonable care and intended use- should you be liable? why is there one body to regulate this? Why are they lumped together? There are a lot of loopholes with these three things. Maybe that is why There is a process in place by the government and they still get by with ineffective drugs- obviously there is a problem with the process to get there. The limits to them getting the drug to the market are set by the government. Everyone knows if you smoke too much- you'll probably be killed. But what ever happened to individual responsibility? There is much more of a following of the statement- tens got tens of billions of dollars every year from the big tobacco companies- in theory it was suggested that the right use for this money is to put in place smoker education programs- public health programs. How many states are really doing that? Tobacco companies need to recruit new young talent down the pipeline because they are constantly killing off the older talents. How could you argue individual responsibility for people who are addicted to these things? What about the intent of the manufacturer? Hide evidence or mislead the public? Driverless cars- litigation wave of the future. Mercedes Benz and Tesla getting sued over accidents that result from mistakes in the coding. In the case of tobacco- big tobacco lied, they paid scientists of dubious reputations to come out publicly and say that the stuff was not bad for you, and they got hammered for it once this all came out. Exxon Mobil have done something that, when they have been criticized recently, for misleading the public about the risks associated with climate change, and the risks that the company itself is under, would directly affect the share price and hurt the investors, so a lot of people will be hurt if Exxon cannot sell the product- Attorney General says they have been hiding this, but Exxon says they have published a lot about climate change, they publish in journals, publish in very obscure science journals, it is not something that has gotten wide distribution. They are financing research about climate change but on the other hand they are supporting think tanks that say that climate change is nonsense. So, they can defend themselves. They achieve public relations benefits. Doubt of climate science in particular. This is really clever if it was intentional.

Corporate Philanthropy and Volunteering vs. Corporate Responsibility

Donating to good causes, offering EE time to working on habitat for humanity are corporate philanthropy. Philanthropy and volunteering are about activities that are not the core activities of your business. Activities with clearing a park are unrelated to your telephone business. Corporate responsibility relates directly to how you do business and how you make your product. It is about improving your processes and your delivery so that the impacts on people and the environment are better managed. This is not about employee bonding or about activities not central to your business.

Earth Overshoot Day

Ecological footprint is how much we demand from nature. Humanity currently uses the equivalent of 1.6 planets. 2016- August 16th. For the first seven months, we lived on regular salary, the remaining of the year, we are living on credit card debt. Overshoot day is the day on which we exceed the planets capacity to provide the resources we use and absorb our waste. Why do we care about ecological foot print? Deforestation, biodiversity loss, carbon dioxide in the atmosphere. Without sufficient resources it is hard to operate an economy. Fossil fuel use is a big part of the footprint. In December 2015, 200 nations agreed to reducing carbon emissions. How much do we feel that individual actions are going to make all the difference? But should it be governments? Or business? If people do individualize the importance, then it helps everyone including businesses for generating an atmosphere. Is it realistic that we are all going to do that? How many will actually change the way they live? People with more power can start... people respect and buy things for them Rightly or wrongly, have to or feel they have to, maximize returns for the shareholders. What are those quarterly results and they are not going to change very much unless they are required to, either because the customers are buying from someone else less impactful or unless the government makes them. But government and law is EXTREMELY slow. Corporations, those on BOD and CEO's are not going to change unless all of the individuals in society are going to push them to. Maybe social leaders like Gandhi need to push this? The power of one inspiring individual could potentially be huge.

The reasonable individual

FBI director Comey in deciding not to press charges against secretary Clinton- no reasonable prosecutor would charge Clinton with any wrong doing, there was no intent to deceive or to break the rules. There is the reasonable individual that is in law the sort of paradigm for the starting point for the thinking around what is right. Just like that, there is the concept of reasonable business. The concept of the reasonable business is also an exceedingly high standard. The reasonable individual is not reasonable at all- has perfect foresight, knows what to expect and never makes any mistakes. Businesses that feel that they are behaving in a way that is reasonable can be caught in the crossfire. So, there are these principles, they have been developed for business, there has been flesh put on the bones. Ruggie staff and Ruggie himself said that this was a 30000 ft for corporate entities. They made it clear that no attempt would be made to create guidelines for specific industries. So how do you apply them to particular situations? The UN guiding principles have been developed for particular industries. The finance sector has started that process.

McDonald's case- shift from beef to chicken

Historical concern for CSR- giving back to their community Obesity lawsuits in 2001- and the end of supersize in 2004 Worth noting- reduction of packaging resulting from work with EDF in early 1990s and addressing the rainforest beer issue Working with moms to understand consumer attitudes and perhaps influence them, resulting in reputational benefits as well as healthier options Relative importance of profit vs. public service motives. How do you feel with the fact that their products are unhealthy when eaten in excess.

Purview of CR

Four Tiers (from bottom to top)- required by law, expected, desired, unexpected. Required by law- law Expected, desired, unexpected- responsibility. Expected- unwritten rules and expectations, such as health insurance for employees in some situations, there is no legal requirement but it is what is expected. Desired- more than required, corporate engagement or voluntary, treat EEs fairly. Unexpected- way above and beyond the call of duty Unilever- has a sustainable living plan, Double revenue and reduce to a fraction environmental impact, they do so in they did, CEO supports it, this was probably a total surprise. Responsibility- activities that a company does not need to undertake but does not voluntarily. CSR- similar to corporate philanthropy and volunteering, different way for looking at things, less tactical and strategic, less about aligning company to activities. These activities are done because the company feels the need to manage their reputation, activist risk or for good will.

KitKat, Palm Oil, and Rainforests

Give the orangutuan a break... stop nestle from buying palm oil from companies that destroy the rainforest (Green Peace) When the CEO of nestle saw this video, he said... let's hire these people. It is pretty effective.. if a little gory.

Sustainability risk management (ESRM) Forestry and Agribusiness Policy Oil and gas policy Mining policy Police on cluster munitions/controversial weapons Palm oil guideline Hydropower guideline Nuclear power guideline

If you really want to have an impact, modify your policies. Ex. If we want to reduce our net income at the end of the year, let's do so not by giving away money, but by being more careful about what businesses we work with, companies that do not have activities that result in Primary most tropical forest degradation You want to have an impact with your oil and gas business, modify your business to look at what impact your pipelines have, shale gas- reduction of emissions, shale gas compared to coal is much more efficient. focusing ON ALL of those activities that could have strong impacts and where NGOs are looking very carefully at what financial institutions are doing. Palm oil- one of the most impactful industries of the world. RSPO- industry group, multi industry group, everyone involved in palm oil industry, growers, crushers, traders, cosmetics and soap companies, Unilever buys 3% of all palm oil produced globally, RSPO provides certification for sustainable palm oil.

The challenge of financing infrastructure:

Infrastructure development can have material and irreversible impacts on the environmental and local peoples. • Environmental laws and regulations in emerging markets are inconsistent across jurisdictions and often not well developed or enforced. o Solutions started to tackle the issue. Because of the impacts and because of the environmental laws and regulations. What is good in one country may not work in or be acceptable or be legal in a different country. That applies also in OECD jurisdictions. Even more than in OECD jurisdictions, enforcement can be a real issue. Big banks found themselves in an uncomfortable situation- they were getting hammered by environmental NGOs criticizing what they were doing. Complications, reputational risk and the transaction costs associated with managing the inconsistencies and all of the campaigning was impacting their reputation. There had to be some type of solution, thought may bankers, particularly as the campaigning got stronger. • There is a risk that banks enter into a race to the bottom to win mandates, putting banks that seek to apply higher standards at a competitive disadvantage. o Some would say it was not a risk.. it was a reality. bank would go into a particular jurisdiction to explore the possibility of financing a big infrastructure project. A lot of times they could not get comfortable with the environmental or social ramifications of the project in the country. They would leave without financing and then the next bank would come in, less sensitive and boom they would finance it. o Bank syndicates- they break up loans and sell pieces to other banks. This was an issue of banks coming together to deal with something much more difficult to quantify and that was reputational risk. • Environmental NGOs are focused on infrastructure and follow the projects and the banks financing them very closely. • NGOs have known that they should go after the banks because they are very sensitive to public opinion.

Oil in the river

Many years passed until NGOs came and they said it could contaminate us. The five communities organized and filed a lawsuit against Oxy with representation from Earth Rights International. Clients felt that they could not obtain justice against Oxy in Peru. They had an opportunity to conduct their own community development. Oil production continued and it continues today.

The legacy of the equator principles

Marked increase in management attention to environmental and social standards at banks The rise of sustainability functions at financial institutions The mainstreaming of dialogues between NGOs and business. Standardization across jurisdictions and across financial institutions (including multilateral development banks) of environmental and social standards. • Required for Brazilian banks. Is there any enforcement? Where there is the guarantee? There is not a lot of certainty that these companies are actually carrying out these equator principles. But, there is a fear of being the slacker. No one wants to do business with the free-rider. NGOs have commented on this. Bankers do not want to be viewed as dishonest. Maybe you can look at the bank's activity before and after they adopted the principles and see if there is any difference there. There has been a softening of the very antagonistic harsh interaction between the banking sector and the environmentalist NGO sector. It is a very different relationship now.

Corporate Sustainability at a bank

Mission- create value for the bank by developing and implementing an effective approach to managing environmental and social issues. Areas of responsibility- risk management, stakeholder engagement, business support Natural resources and conservation, energy and climate, business and human rights. Three features at least stand out.. in Credit Suisse's Sustainability Affairs Area Compared to what you might expect from a function focused on sustainability or corporate responsibility, there is no internal focus on the operations of the group. In the financial services industry, the footprint is trivial compared to where that financial institution puts its money. It was only after this function existed for a number of years, that people realized thinking about energy efficiency for a bank is going to have little impact. Who do we do our services for? That is going to be the difference between an organization that has big impacts and the ones that don't.

Micklethwait and A. Woolride

One view about corporations- Hegel predicted that the basic unit of modern society would be the state, Lenin and Hitler that it would be the political party. They have all been proved wrong. The most important organization in the world is the company: the basis of the prosperity of the west and the best hope for the future of the rest of the world."

Corporate comms: corporate responsibility

Paul polman and the story of unilever Quarterly reporting and short term initiatives Polman's activities outside of unilever including WBCSD, the consumer goods forum and others. Sustainability as part of the DNA of the organization But is the attempt to use advertising to improve self esteem and body image for women and girls a good thing? Or is it corporate social engineering? Is this the role of a corporation? Nearly unheard of that a CEO would say they refuse to be a slave to the research analysts from banks asking for what the short term progress has been over a few months, said they were not going to get the quarterly results anymore. If you don't like it, you can sell your shares. When he did this, many people thought he was going to lose his job. Probably the only reason he did not is because he was brand new in the position and it would have been embarrassing for the BOD. Get business to focus on delivering returns on a much longer time frame and also to make much more of an effort explicit to have a positive impact on society Putting commercials on television with a view to changing body image for women and girls, you cannot quibble with the intention but the way they do it some people have argued feels a little bit too much like "why is a corporation trying to do social engineering?" Even if you agree with the goal, is this the role of the corporation?

The Evolution of Corporation Sustainability- particularly in north American and western European corporations

Philanthropy --→ Aligned Philanthropy -> Sustainability The notion of being a corporate entity that cares about having a net positive impact on its surroundings.. has changed over time. In the past, they did their business, took a piece of their profits, and gave it to some good cause. Ex. Building school rooms for underprivileged kids. The evolution, after many years of that being the case, and the traditional philanthropic activities being conducted, we have transitioned to aligned philanthropy, corporate institutions have realized in general. Ex. We're a law firm, and when we want to do something good we send a team of lawyers to do something or habitat for humanity? They don't make good carpenters. The trends has been let's volunteer, donate money, but let's do so in areas of the economy that we can add value and that we know about. An accounting firm building homes in underpriviledged areas makes a negligible difference. Now, accounting firms offer accounting services to people who cannot afford them. Financial institutions, going into the field of microfinance, going into places that are new, don't have the resources to train people, there are not a lot of skills, send them to microfinance institutions and offer services to help them build up their skills so that they can add some value. aligned PHILANTHROPY- where you align your philanthropy to the core competencies of the institution Sustainability- no longer has to do with giving away money or volunteering, but rather integrating, give back by not doing distance that is unpalatable on one side and then giving back on the other hand, integrate corporate responsibility thinking into the way you do business.

Public or publicly traded vs. private corporations

Public corporations are those that are listed on a stock exchange, most of the big companies are public corporations. But there are plenty of private corporations as well. Listed on some form of stock exchange

Role of UN Guiding Principles

Role of the UN Guiding Principles- The global benchmark for how companies manage their social impacts in and beyond the workplace The guiding principles provide a clear and practical definition of what it means for a company to respect human rights. Three pillars: the state duty to protect human rights, the corporate responsibility to respect human rights, access to remedy for victims of human rights abuses. Impact of the UN Guiding Principles Evolution from corporate responsibility risk being public relations issue to legal and political implications Need for more sophisticated and structured corporate responsibility systems as a result The Guiding principles enable businesses to anticipate and management corporate responsibility risks efficiently. The concept of reasonable business constantly evolves/ indirect and substantial legal effect By putting things in black and white, making them clear and concrete, making them clear for everyone to work, enabled businesses to manage risks efficiently. The guidance document- there is a lot of guidance behind the three pillars, whereas the pillars are simply the characterization. What is and what is not reasonable for business. Gives clarity for the business sector. Business likes clarity and stability. Even when that clarity and stability work against it. At least having some predictability built into the system.

Company Codes-

Self imposed ethical standards: companies adopting their own codes of conduct The business and human rights resource centre maintains a list of companies which have a human rights policy in place Criticism- limited value since voluntary nature and lack of enforcement mechanism Trust in the financial sector has never been lower. Trust is desperately needed in the financial sector given they are the people trusted with holding onto your savings on your behalf.

What is the responsibility of a corporation operating in society?

Should a corporation limit itself to obeying the law or do its responsibilities towards society go beyond that. What is the proper place and what is the proper role of business in society and what does business owe its stakeholders? How can a business optimize value for its stakeholders? Climate change- how do you measure the emission of a business How is philanthropy different from corporate responsibility? Corporate responsibility- view from the C-suite Reputational risk What corporations are viewed as leaders in sustainability? Reporting corporate responsibility activities Do corporations need to worry about human rights? Using the tools of finance to address social needs- what is impact investing. Recognize the tension between short term and long term objectives of the business and between corporate benefit and broader societal interest.

Banking, Trading, and the Poor

Social NGO community argues the trading of food products on a big scale, that buy and sell on the international markets, are having an impact on the price of those products, which ultimately hurts the poor, some actually agree with the notion the the financial institution trading of food commodities hurts the poor and increases poverty. Exploding food prices impact the poor. Background public policy video and this NGO wanted to rile people up. Thousands of emails being sent to the CEO to protest this video once it went viral.

The impacts of corporate activity

The Planetary Boundaries Framework- based in Sweden in Stockholm, they have taken a look at impacts of human activity on the planet, what are the environmental impacts of business, developed a framework based on planetary boundaries. The way they view things is that under each of these 9 categories of activity (ex. Use of fresh water, climate change, ozone depletion, bio geo chemical flow), we are as a global society really pushing the boundaries pretty intensely on some of these, not necessarily the ones that you would expect. They would argue that we are in the yellow zone of climate zone, even though current growth of green house emissions continues at the same rate, we will be in trouble. There are much more urgent issues that we need to address if we are going to focus on the impact that we are having on society. In terms of functional diversity, we are making a huge impact. Relatively few species have disappeared completely, but some species like cheetahs whose numbers are so small and they have been relegated to little pockets of populations across which there is no genetic flow, yeah maybe we have tigers in the wild, they are inbreeding right now, little genetic flow across the segregated and dispersed populations that are surviving through a sea of human intervention. They will eventually disappear. Genetically after a few generations of inbreeding, they are done.

The Thun Group of Banks

The UN'S Protect, Respect and Remedy, framework and the guiding principls were unanimously endorsed by the UN human rights council In mid 2011 In May 2011 four banks- Barclays, Credit Suisse, UBS and Unicredit met in Thun, Switzerland to consider the UNGPs and established an informal group Aim was to consider the UNGPs and their implications in the financial sector. A discussion paper was published on October 2, 2013, on the business and human rights resource centre as a contribution to public debate and by use for banks Banks have been implementing this guidance since 2014 Later addition of BBVA, ING Bank, RBS Group Wanted to translate these principles into something for the financial services industry. The implication is that the people who are having impacts on human rights, banks don't necessarily have the direct interactions with the victims of environmental impact, they are the ones who actually make it possible. They are one step removed from the actual impacts. They only make them possible through financing- that makes it more difficult and more complicated to manage for financial institutions. Impact of the Thun Group- Thun group as a paradigm shift, particularly given the fact that banking has a different relationship with most victims of human rights violations. Critical step in outling human rights responsibilities of financial sector. Notion that a common understanding amongst the companies involved that respect for human rights is an integral part of the business. In terms of the after math of the Thun Group's work Recognition that the UN document is the starting point Analysis of integration of the UNGPs into all bank activities Reason to human rights due diligence - the right thing to do, not just reputation and financial advantages- reputational impacts could be hurtful to the financial institution.

The calculation of emissions

The calculation of emissions: For any one corporate emitter, the principal, the greenhouse gas protocol, a collaboration between the world business council on sustainable development, WBCSD, and the world resources Institute, refer to three main categories of GHG emissions. Scope 1: direct emissions of principal Scope 2: indirect emissions by principal that are outsourced by principal to electricity generation utilities Score 3: other indirect emissions of principal. The methodology of calculating this was created by a well respected think tank in DC. The chair of the board is Paul Holman, CEO of unilever. Two well respected organizations. They got together they developed this protocol, let's divide emissions into three broad categories. Scope 1 is easy. You are a farm you have some methane emissions resulting from that farm. You are a factory and you have onsite power generators that burn gas. Those are your scope 1 emissions, the direct emissions of the principal as it is referred. Probably the single most important source of CO2 emissions for most companies is emissions associated with electricity use. That is referred to as scope 2. These are outsourced by the principal to electricity generation utilities. How many factories generate electricity? Not many. Most buy electricity off the grid. The other indirect emissions of a corporate entity, you outsource some functions of your company. Ex. Company that outsources delivery services. The biggest source of emissions in source 3 is air travel. 1-2% paper. You pay someone else to emit on your behalf because, for example, you don't want to have your own airline. NGOs have been arguing for years that you finance the construction of a coal fired power plant, why isn't that also an other indirect emission of scope 3? Why isn't that a scope 3 emission of the bank? You are making a loan, it would not be possible to build that facility without that, without the facility that you just financed. Should BOA or JP Morgan be inputted those emissions???? Scope 2 and most of standard scope 3 emissions are paying someone to emit on your behalf.. it is easy to calculate your share of those emissions. But when you flip that and it doesn't become upstream emissions but it becomes downstream emissions. Someone who is emitting because of someone else outsourcing to you. This is extremely difficult to calculate. How about the law firm who wrote the contract without which the coal fired powerplant would never have been built? There are a plethora of actors that make it possible for the actors to run, because of the direction the money is going, it is upstream and not downstream, makes it incredibly difficult to calculate. A lot of people are arguing that if you finance something, those are your emissions.

Alien Tort Claims Act (ATCA)

The district court shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the US Ability of foreign citizens to seek remedies in US courts for human rights violations for conduct committed outside the US Limitations Kiobel vs. Royal dutch petroleum co- the supreme court ruling that there is a presumption against the extraterritorial application of the alien tort statute Controversial- exercising legal jurisdiction in the United States over matters that occurred abroad- long arm jurisdiction There has been an explosion of cases where human rights violations outside of US involving victims outside US but in which governments committed the violations OR corporations in complicity with governments, that may mean that all of the dirty work was done by the governments- but there was a reasonable argument to be made that the corporation was somehow complicit in these operations. Shell- assets in US even though headquartered in UK and Netherlands- prominent example of ATCA, the case law is likely to continue to grow as more and more corporations are dragged into court in the US over complicity in human rights violations outside the US. Highlights the practical importance for the corporate sector to have guidance in this area. Exercising of legal jurisdiction in the US- long arm jurisdiction which as you can imagine other countries do not particularly like. A lot of US citizens do not like it when they are taxed by the US for money made outside of US when they were not living in the US. Ex-pats have experienced this.

Starbucks: Form 10-k

The fiscal year is on there- the normal fiscal year end is usually dec 31 or june 30 The company has to provide detailed information in the most objective non-marketing language possible about the business and the evolution of the business in recent years. There is a discussion of risk factors, properties legal proceedings, Selected financial data Managements discussion and analysis- MDNA- taking the financial statements in particular the income statement, comparing to last year and saying line by line, net revenue increased or decreased by x% WHY. Take each of the line items of the income statements, compare and give an explanation for investors why that is the case. Changes in and disagreements with accountants. Directors- to look for staff. Detailed description of what the company is doing, how it is doing it, where it is doing it, etc. Financial condition and results of operations are vulnerable to and may be subject to averse factors outside of our control: is a place where as an investor or as somebody working in a bank you will want to be very focused on the kind of information that is in here Properties: properties would be a key part of starbucks' business, information about shareholders, performance and selected financial data, a summary of some of the key financial results for the year and recent years. Discussion of the specifics- general and administrative expenses increased 20 basis points primarily driven by the impact of our ownership change in starbucks japan- ex. Financial statements are another key section- you find the most important information about a company, the notes to the financial statements are extremely company, these are drafted by the auditors and this is where a lot of the most interested and important information can be found. Potentially the most important page in the entire 10K- report of the external auditors- 4 or 5 paragraphs, mostly boilerplate, "in our opinion such consolidated present fairly in all material respects the financial position of..." this phrase means it is an unqualified financial statement- that means it is ok. Anything other than that is a huge red flag. Changes from accountants advice- not applicable because it was unapplicable Source of huge amounts of helpful information from the company.

Role of the UN Guiding Principles-

The global benchmark for how companies manage their social impacts in and beyond the workplace. The guiding principles provide a clear and practical definition of what it means for a company to respect human rights. Three pillars: the state duty to respect human rights, the corporate responsibility to respect human rights, access to remedy for victims of business related abuses. The basic framework of the UN Guiding principles are these three pillars, the corporate responsibility to respect human rights and access to remedy for victims of corporate actions or lack thereof, that can result in human rights abuses. The process of developing this framework took 6 years, it was developed by a committee headed by professor John Ruggie, a large amount of money and a broad consultation process. One of the provocative questions posed would be is does this seem like a straight forward obvious framework considering how much money went into its consideration. Sometimes there is really value in stating the obvious. Protect, respect and remedy. By drawing attention to it, the UN and the Ruggie team was able to put into simple, clear, unambiguous terms, guidance that could be used throughout. Question of legitimacy- Harvard professor working on it for 6 years. Probably did start with someone just writing it on the back of the envelope, then probably did very expensive research just to come back to the starting point. The second point is something that people have not really focused on. Businesses should in some way be responsible for human rights violations that they might be associated with either directly or by working with governments that are abusing human rights. There had never really been an articulation of the second point. If you look at countries and their GDP vs. corporations and their revenues, over half of the 100 top economies in the world are corporations and the impacts of them are huge. Ex. DOW Chemical- consumes more electricity than all of Austrailia.

Key tools- RepRisk and MSCI ESG Research

The impacts can be huge, we are taking about a ton of money. How do you say oaky, we need to do something, because this can hurt our brand or hurt our value? Or when do you say.. it's not worth it I am moving on. RepRisk- based in Switzerland, client base all over the world, they look, through their huge database, they want to quantify the risk associated with particular companies in particular industries as displayed as apparent from essentially online media, print media, social media. They have a staff of people working all over the world, scouring through websites and daily publications and weekly publications, looking for dirt on companies. That is their job and all of that dirt goes into a database. Algorithms spit out a number. They say "their risk rating is.... 74 out of 100". And if you are someone who is trying to decide whether to do business with a company, you can look at that number and decide if that is something for you. What is the overall risk of companies, they only follow and gather information about companies. Large companies pay hundreds of thousands of dollars for access to this database, it tells them very relevant information about their partners and their business. Make concrete business decisions with this. • MSCI- sort of like Bloomberg, they give IVA ratings to all sorts of companies around the world. Fitch and S&P, they rate companies on the basis of IVA- Intangible Value Assessment. Calculating what the reputational risk is of a particular company is a lot harder • These ratings, like it or not, become reality

Fiduciary Duties

The officers and directors of a corporation owe fiduciary duties towards the corporation, which fall under two broad categories -duty of care- informed decisions, not careless, whether you are a senior officer or a director (member of BOD, the ultimate fiduciary body of a corporate entity.) done your homework before you make a decision on behalf of a corporation. -duty of loyalty- the interests of decisions, the actions be motivated by a commitment to serve the interests of the company rather than your own. What about when there is a conflict of interests between your own interests and when you serve on a BOD? Usually you abstain from the vote the way judges recuse themselves from cases where they have a personal interest. But what exactly does it mean to own fiduciary duties towards the corporation The Pursuit of Shareholder Value It gets difficult to decide what it means to owe fiduciary duties towards the corporation in regards to shareholder value. Ex. Election 2016- Trump refusing to make public certain tax records, controversy about paying little or no tax for many years, that he owes a fiduciary duty to pay the minimum tax allowed under law to his investors. Is this a single minded obsession? Yes, of business everywhere and especially in the anglo saxon world. Should it be? Maximizing the value of the share, which is going to benefit the shareholders, is in the view of many, the ultimate responsibility of the management of the corporation. Determining whose interests the corporations should serve is one of the most important questions in corporate law and business practice today. In the view of many, the answer to this question may determine whether a corporate is a net contributor to society or alternatively a drag on society. Under the law, there is less of a commitment to deliver value only to shareholders but also to stakeholders.

The importance of Dodge v. Ford (1919

There is a healthy and important debate in academic circles about whether shareholders actually own the corporation. Some argue forcefully that the corporation is not owned by anyone, that it is an independent entity and that a share merely gives certain limited rgihts to the shareholder. If you own something, you can destroy it or do anything you want with it. There is an element of control that shareholders in a public corporation do not have. Shareholders receive dividends and vote on important issues, but basically there is little in the element of control for shareholders. In practice, however, corporate officers and directors treat shareholders as the owners, and operate the corporation not in the best interest of the state or society but in the interests of shareholders. Which may be different from doing so in the interest of the corporation itself. Running the corporation in the interests of shareholders, may be different from doing so in interest of corporation. Otherwise, you might run it in the interest of the corporation itself. That is not what happens is practice This is often referred to as shareholder value- the notion of maximizing returns, managed that the short term share price is maximized. This is with a strong emphasis on short term. Dodge v. Ford Motor Company, 170 NW 668 (Mich 1919)[1] is a case in which the Michigan Supreme Court held that Henry Ford had to operate the Ford Motor Company in the interests of its shareholders, rather than in a charitable manner for the benefit of his employees or customers. It is often cited as affirming the principle of "shareholder primacy" in corporate America. At the same time, the case affirmed the business judgment rule, leaving Ford an extremely wide latitude about how to run the company.

The corporate sustainability function today

There is no one place where the corporate responsibility or sustainability function is generally located within the corporate structure In many cases it is dispersed and/or decentralized. Their influence, size, and attributions vary enormously But in some industries their power has also grown enormously over the past decade or so. Standardization is likely to evolve in the coming years. If you are in a big tech company, there are comparatively limited impacts. Generally speaking, the tech industry is one where the influence or leverage is limited. In other industries it is quite the contrary. But, there is a lack of standardization.

Benefit Corporations

This has led a number of US States to pass laws establishing a new form of corporation, the benefit corporation, which explicitly allows consideration of other interests in addition to those of shareholders. Despite the success of the B Corp and benefit corporation movements among smaller businesses, very few large publicly traded corporations have adopted etiher of these models. If youre a big mining company, youre a business to business corporation, buy on quality and nothing else. Being a B corp is helpful in the retail space because many buyers like to buy from corporations that they feel are doing the right thing. When money is short though principles go out the window. Many retail businesses are the ones that have followed the b corp route. The B Lab did something really interesting.. they said we're not getting enough businesses here, the reality was it was going to be very difficult but under current corporate laws for the b corp model to become more prevelant. They became a lobbying organization, said why don't you create a new kind of corporation that will explicitly have as its objective and stated clear goals, in its certificate of incorporation, the pursuit of broader social interests, that sort of lobbying effort has been incredibly successful. Unilever considered become a Benefit corporation- sells Dove, tea, etc. Second largest in the world after proctor and gamble. They have said that they might follow the route.

The impacts of the corporate sector

What industries emit the greatest amount of greenhouse gases with potential impacts on the climate? Agriculture? Coal/power generation some of it for transportation and some for phosphoration, in some countries agriculture is way way above power generation. It is hard to collect data about agriculture. The impacts of agriculture are relatively small. What is the largest growing crop? Soy, palm oil, and most of this is cultivated in Malaysia but it has become Indonesia. What are the highest emitting countries in the world? Unsurprising the US and China, US first and China second in terms of global emissions at some point, but now it is flipped bc China's emissions are growing and US is decreasing. This is because shale gas is being used in the US to replace coal, and this is much more efficient in terms of emissions. Third in the world highest emitting country- Indonesia...4th.. brazil, this is because of deforestation. To establish a palm oil plantation in Indonesia, you need to clear a huge amount of land, when you clear the land, you generally chop down trees, there might be a few valuable species, they are just burned where they are. The haze goes over to Singapore, because it contaminates singaporian air. Not oil palm plantations, cattle and soy bean. That is the agricultural question.

Human Rights in the Financial Sector:

Working in the financial sector- Exceedingly long hours Demanding work Difficult conditions No collective bargaining Is there a human rights issue here?

What responsibility does a corporation owe to its customers?

You may think that this is a relatively recent thing- the notion that you could sue McDonald's for serving you coffee that is too hot. The basic notion that whoever sells you a good or a service owes you something. This notion has been around for quite some time. How these examples might impact your own thinking about responsibility and corporate responsibility in particular. Can understand why the corporation would be responsible in some situations, but it is less clear in other situations. McDonald's has been subject to a lot of criticisms over the past few years.

Sixth Extinction

You read about it in E.O Wilson's book Half Earth But bear in mind that this is the only extinction caused by humans The impacts are likely to be felt for thousands of years The corporate sector has a big role in transforming natural habitats into human landscapes but probably not as much as people think Questions" any reactions to this reading? Other than the agricultural sector, generally it's the people that transform habitats and business follows.

UN Global Compact

an initiative of then secretary general Kofi Annan announced at the WEF in 1999 and launched at the UN in 2000 Complex governance

reputational risk

any environmental or social issue that has the potential to negatively impact reputation. This induces actions or transactions that could involve: Adverse environmental or social implications Controversial client and/or business activities Reputational risk is the potential that negative publicity regarding an institution's past or present business practices, whether true or not, will cause a decline in the customer base, costly litigation, or revenue reductions. If you find yourself in a position where you are managing risk in a financial institution, you are constantly having conversations about who you should be doing business with and who your clients should be... often what you hear is, yeah but what this or that NGO company has said it not true, they are serious they are respectable, can turn into a she's right he's right. It doesn't matter according to the Fed, perception, when it comes to reputational risk, becomes reality. if you are viewed to be bad, even if you are good, whether true or not, if you are perceived to be bad, that becomes your reality and that impacts your bottom line, results in high legal costs, will need to focus on the reputational impact of whatever issue it is that has come up. Does it matter if it's true.. no. Reputational risk is all about perception, whether it is true or not.

Civil law vs. common law

common law based on case law, the dominant form of law in the US except Louisiana which is a civil law jurisdiction. Civil law is not based on precedent but based on statute, where the basis of what happened before is much less important than the statute, the interpretation of the existing laws and regulations by the judge is the most important. First general incorporation statute based by New York in 1811, federal laws that apply to corporate entities but in terms of how you organize a corporation it is state law that you need to worry about. Most are organized under Delaware, most important under corporate law purposes. Why is Delaware so important. It is a state that is business friendly, in terms of its decisions in terms of case law, they treat businesses well and there is a pro business jurisdiction, most of the US corporations are organized there.

What is the correct time frame?

emphasis on short term Even if you accept that shareholder value should be the goal of the corporations management, what is the correct time frame? In other words, should a corporations officers and directors be managing for short term SH value or for the long term shareholders. In this era of high frequency trading, this is particularly important. The Warren Buffet school of investment of 20-30 years ago- take a look at a company, fundamentals of company, do you expect the value of the share price to increase substantially in near future. Buy a big chunk of shares and sit on it if so. The high majority of trading today does not follow this pattern. Quants sitting behind computers, analyzing shares, buying them and sitting on them for very short amounts of time. The average ownership of a share by an investor is astonishingly short. Leads to a situation in which it is not in the interest of shareholders to maximize value in long term, but over the short term. We are using technology to capture price differentials in the market that can provide revenue to the trade. But the only problem is this with short term ownership of shares- what if you are a pharmaceutical company? How long does it take to develop a product? 15-20 years. Are we shooting ourselves in the foot by allowing this. A lot of day trading goes on with pharmaceutical companies in NJ, Switzerland, etc. less of the revenue that companies set aside for RD be given out to shareholders, you just want those companies to deliver dividends now and if everyone knows that dividends will be delivered, price increases but the society is left without the pipeline of new drug development.

Video (skeptical negative view of corporate organization)-

modern corporation grew out of the industrial age, the industrial age began in 1712 when Thomas Newcoming made a steam driven pump. It was all about productivity, more coal per man hour. Then it became more steel, textiles, automobiles per man hour. The system is basically the same, producing more sophisticated products today. The dominant role of corporations is a product of last century. Corporations were associations of people charted by a state to perform some function, like building a bridge. Few corporations in early US history, the ones that existed that stipulations like how long they could operate, couldn't own another corporation, shareholders were liable, in both law and the culture the corporation was considered a subordinate entity that was a gift to serve the public good. The civil war created an enormous growth in corporations, banking, heavy manufacturing. Corporate lawyers realized they needed more power to operate and they wanted to remove some constraints that had been placed on the corporate form. 14TH AMENDMENT- due process clause- could not take away life liberty or property for black people, corporation lawyers say you cannot deprive a person of life liberty or property... argued that the corporation was a person. Supreme court went with that. Many 14th amendment cases brought by corporations, not blacks, which was what the 14th amendment was created for. Stripping rights from people. Previously, the corporation would not do anything that was not stated in the charter.

Theoretical population growth curve

populations when they are small tend to grow at a relatively low rate. If population density in an area is low, the likelihood of males and females in a species coming across each other and reproduce each other and reproducing is lower. Most of our populations are way down at the bottom... of fish stocks.. if your fish stock is somewhere all the way to the left.. if every year you come in an take half of the population, for animal feed for example, half of a small number is a small number. If the population were somewhere closer to the inflection point, and you take half.. half of a large number is a large number. If we were to allow our population to recover to a relatively higher level.. we could take out much more. It pays financially to go in, manage fisheries in such a way that you don't fish for a few years, you let the population recover and then you go in and you make a financial killing. Conservation interests and economic interests are sometimes highly aligned. This is a very good case where you can make conservation cases for better management, but you can make an economic case as well. Why is it not the case that we're managing the case better? But if all fisheries were to do this.. it might saturate the market and the prices would go down. Countries may not be able to survive without the income from this. You pay someone not to fish... fish stocks recover. You need to get people to invest in fishermen to not fish... and then that would prove to be very profitable in the end. The problem is ownership. If you owned this fish stock, you would manage it for the long term. But no one owns it, there is an interest in going in, making a short term killing, knowing that it might not be there at all next year. Wrong incentives. Thinking about incentives is something that economists do but government officials don't do it enough.

Starbucks Global Responsibility Report

starbucks does not report a glossy annual report, this is what they have for the shareholders, it is much more shareholders, not subject to the legal risk that the other documents subjects them to, they need to make sure that there is no contradiction between these numbers and the numbers in the annual report, this is shorter and glossier. Clearly the 10'k is very different from the global responsibility report Some of their corporate sustainability commitments may carry over into their sec disclosure, but this is not always obvious. The form and the tone in addition to the substance, of the two documents is very different. In regards to their global responsibility annual report, is there something special about starbucks that makes it possible for them to be especially active in corporate responsibility? Hint: margins They work with farmers to cut out the middleman and they do a lot in the way of energy conservation. What makes a company like starbucks in the position to do as much as it does? Their customers They need the profit before they can pursue the CSR, they don't have huge margins, they can do things which may involve high costs, that is something that they would not do unless they felt like their customers wanted it.

History: From Governments to business

• 1976: guidelines for multinational enterprises (only applicable to corporations from OECD countries) o Importance of National contact points (NCPs) o Guidelines for MNEs are notoriously difficult to enforce. • 1973-1994: UN Commission on Transnational Corporations TNCS o Goal of formulating a corporate code of conduct for TNCs o Disagreements between developed and developing countries. o The results were fairly inconclusive. Disagreements between developed and developing countries led to weak results. Between 98-2003 there was a related but discrete sub-condition • 1998-2003 UN Sub Commission on the Promotion and Protection of Human Rights, Working Group on Transnational Corporations • 2005- Harvard professor John Ruggie as the UN Special Representative for Business and Human Rights o UN Took a more modern approach • 2008- "Respect, Protect, Remedy" framework as a conceptual way to anchor the business and human rights debates. • In a 2008 resolution the Human Rights council welcomed Ruggie's reported and extended his mandate for an additional three years. • The Human Rights Council asked Ruggie to provide concrete recommendations on o How the state could prevent abuses by the private sector o How to elaborate on the scope of corporate responsibility and o Consider options for effective remedies available to those whose human rights are impacted by corporate activities. • 2008-2011- extensive consultations with stakeholder groups including governments and NGOs, businesses

Equator Principles

• A voluntary framework for environmental and social risks in project finance; o Developed to avoid a "Race to the bottom" on environmental and social standards o Spearheaded by private sector banks o Adopting banks pledge to review environmental and social risks in project finance transactions Launch: adopted by ten banks, applied to transactions over USD $50M Equator 2 (2006): threshold lowered to USD 10M, scope widened to include project advisory activities Equator 3 (2013): 80 Equator principles financial institutions (EPFIs), release of EPIII with extended scope. • Project finance, as a defined technical term, was becoming a narrower and narrower market. More and more financing was happening by providing financing to the corporation building a project rather than providing the financing to the building itself. • A lot of it became recourse to the project sponsor, as opposed to the older finance and the one to which the equator principles applied, which is non-recourse to the project sponsor. Usually the only way to re-pay yourself would be to go against the cash flows paid back to yourself from the project. • The bank group has grown from the original 10 to 80 now around the world. Equator principles adopting banks commit to applying a common framework for managing environmental and social risk in infrastructure finance. The framework builds on the IFC Performance Standards and other parts of its sustainability framework. The Equator principles cover areas including risk categorization of projects, loan covenants, stakeholder engagement, grievance mechanisms, independent monitoring, and public reporting. • Where in the categorization the standard falls, what financing applies. • What requirements are you going to impose on the borrower in order to get them to manage risks in a way that is not going to damage your reputation as a longer. • Independent monitoring of projects never happened before. Governed by steering committee of representative from -15 banks. Process: active NGO Participation and input during the drafting process benefitted from expert input from outside the financial sector and also had the effect of preemptively managing criticism. Scope of the equator principles was broadened considerably to include project-related corporate loans (PRCLs) in addition to traditional project finance loans. Transparency and disclosure requirements were strengthened. • Just the fact that you are inviting them to the table to discuss is a clever way to manage some of the potential backlash. A lot of financing was moving away from the technical definition in order to capture some of that lending, but that looked and smelled like project finance. Created a new category of project related corporate loans- it looks like a project financing loan, it smells like it, it should be treated like one.

Sustainability Reporting

• Early attempts at getting more disclosure on ESG issues • Global reporting initiative (GRI) • Integrated reporting and the IIRC • Sustainability Accounting Standards Board (SASB) • Are GRI and SASB complementary or competitive? • A lot of information that shareholders really want to hear about what not making it into the reports. • Pension funds and other individuals saying that they needed more information out there. They wanted to know how much the executives were paid, know how the companies are managing their responsibilities as a corporate citizen, how they are governing their own organization, do they provide to their shareholders the guarantees that good standards of governance require.

Challenges and Risks:

• Financial: including stakeholders • Company's history and reputation o Previous history matters, e.g. Macondo oil spill and its effect on BP's reputation, public and investors perception o GEOGRAPHy • Location will determine the available resources o Mechanisms for implementation • Proposed strategy has to consider feasible ways to implement it.

Assessing responsibility of corporations

• Is the damage incurred by a customer or third party a direct consequence of the intended use of the product? o Compare the cigarette manufacturer with the manufacturer of kitchen knives • Was the manufacturer aware of the damage caused by the product? o Compare the cigarette manufacturer with the product of a pharmaceutical product that has unforeseen consequences • Lung cancer results directly from the intended use of the product. Vs. when someone gets knive'd in a bar fight- this is not a direct consequence of the intended use of the product. How might that effect your view of what the correct solution is here? • Intended use vs. intended use • What the product was meant to be used for vs. some other random use. • Tobacco companies have known for decades that tobacco can be harmful to your health in excess. What about pharmaceutical company? FDA is incredibly strict that a lot of people are critical of the safety measures put in place by US government because it makes drugs that would save the lives of many unavailable for years. • End of the trial period- seems like the drug is safe- and then something happens. How can you justify dragging them into court if one of their drugs went bad? • What else can the physician do other than say "the FDA says its okay" • A lot of drugs get approved for use against Disease A but its known through the grape vine that it is also good for disease B. Whole issue of drugs being used for unapproved uses. o Did the manufacturer intentionally hide evidence or intend to mislead the public about the negative impacts of the product? • Consider the ExxonMobil case? • Cigarette manufacturer knows that its products cause cancer. Tobacco companies knew that they were hurting customers who were smoking cigarettes. But, did the tobacco manufacturer not transparent? Did the tobacco manufacturer try to hide the consequences as was alleged? While mainstream scientists knew it was causing cancer, that tobacco companies were hiring their own scientists and expert witnesses to cast doubt on the sciences. 4. Is the product habit forming or addictive? • Compare, again, the cigarette manufacturer of kitchen knives 5. Is the product a basic necessity and if so is it one where direct causality can be established. • Compare the fast food company with the automobile manufacturer Does the manufacturing facility have any say in how much a person uses a product or how? Vs. the bartender who is directly giving the product to the consumers. The middle man makes the difference. Reasonable care and intended use- should you be liable

Human Rights and Business

• Of 100 top economies, 51 are corporations • Multinational companies have an enormous impact on people in countries they operate o Impact of these companies because of the breath of the operations can be huge. People started thinking more and more where does business fit into the human rights discussion. • Given economic status and international dimension, corporations have an important role in the maintenance of human rights. • Do we want to hold corporations accountable on human rights issues? o If they are not holding themselves to high human rights standards, how we do we hold them accountable. Human rights are something that you associate with nations and countries. Human rights are something that are enforced or that are not. Over the course of the last few decades, people have begun to realize that countries are important, but the power of individual corporations is simply put awesome.

Reasons for implementing corporate responsibility:

• Reputational risk management (both strengthening reputation and managing the downside) • Attracting sustainability minded investors and clients • Employee engagement (potentially can lead to an effective engagement with stakeholders)- some people are willing to be paid less for the opportunity to work for a company that is conscious towards sustainability. • Potential cost savings and revenue opportunities • Lack of alignment between ethics and laws • Innovation (higher levels of trust among employees-> willingness to take risks for sustainability->) innovation

Universal Declaration of Human Rights (UDHR)

• Result of WWII • Adopted on December 10th, 1948 in Paris • First global expression of the rights to which all human beings are inherently entitled. Eleanor Roosevelt as the chair of the united nations human rights commission was the driving force in creating the UDHR From 1928-1940 roosevelt visited cornell campus yearly and through her work on behalf of women at the university became good friends with Martha van rensselaer. Together their shared passion for using the home economics movement as a vehicle for social reform Historically, human rights were viewed as state-level issues. Therefore, no mechanism at the international level existed that could hold corporations legally accountable. Soft law instruments, quasi legal instruments such as resolutions, guidelines, principles, codes of conduct, internal guidelines and rules Possible remedies to sue under domestic law.

SEC and Climate Change Disclosure in the US

• The SEC in 2010 issued interpretive guidance on climate change • The SEC chair, Mary Schapiro emphasized the commission was not taking a position on the climate change issue, but required companies to consider the risk that climate change could post to their businesses • Inconsistencies between internal documents and required disclosure can lead to damaging legal action: Peabody Coal- before the decline of the coal industry in the united states, share prices of coal companies today vs. 5 years ago, the bottom has fallen out of the market, the share prices are roughly 10% of what they were nearly 5 years. • Schapiro currently sits on the SASB- as does Michael Bloomberg

The Response

• To develop a voluntary but industry wide set of standards for environmental and social management in project finance that will: o Address a regulatory uncertainty and patchy enforcement in the environmental and social space o Resolve inconsistencies between various jurisdictions, which increase transaction costs and due diligence requirements; and o Prevent certain banks from being put at a competitive disadvantage and a resulting race to the bottom. o 10 institutions by the time it was actually signed. Only included one US bank; Citi Bank. But, the big infrastructure projects are mostly done by European or Japanese banks. The other big US banks are mostly focused on the US market. o 80% of the global market. Said they should be competing against each other on the basis of price and service, not competing against how low we can set environmental and social standards. All agree to abide by a single set of rules that is going to be high. Competing on what they should really be competing on. o In U.S. and U.K there are fears of collusion but those issues were managed appropriately. o Addressed the fact that it is so difficult to predict what you would have to do, prevented the race to the bottom on environmental and social issues.

Sustainability Accounting Standards Board

• US non-prpfit with a mission to develop and disseminate sustainability accounting standards that help public corporations disclose material, decision useful information to invesotrs • Communication bridge between companies and investors • Founded in 2011, in san fran CA