January 9, 2011 1 Comment
In my previous post, I reacted to the fact that Advertising Age had named sustainability one of the “jargoniest jargon” words of 2010 that they “wish you would stop saying.” Although I agree that some of the vocabulary used by sustainability practitioners is actually jargon, I didn’t agree at all when asked to stop using the “S word” : Here you go. SUS-TAI-NA-BI-LI-TY.
There’s undoubtedly a need for a better definition of what sustainability actually means and the same goes for the acronyms usually related to this concept, such as CSR – Corporate Social Responsibility – sometimes amputated of its Social part, CR – or ESG – Environmental Social and Corporate Governance.
Alberto Andreu Pinillos, Global Director of Reputation, CSR, and Sustainability at Telefónica, one of the world major operators in the telecommunication sector, leader of the Dow Jones Sustainability Index (DJSI) in its sector, for the second year in a row, in 2010, says that its company “likes the DJSI’s definition for Corporate Sustainability: a business approach that fosters value creation in the long term for shareholders, taking advantage of the opportunities and the effective risk management, related to social, economic and environmental development’.
This definition provides to Telefónica the guiding principles to define and execute its corporate sustainability strategy.
1. Managing risk: according to Alberto Andreu the objective of this “defensive strategy” is “to minimize the negative impact” of the company’s global activities: supply chain, integrity, privacy, data protection, health & safety, electromagnetic emissions, etc.”
2. Managing new opportunities: here, the objective of what Alberto Andreu describes as an “offensive strategy”, capable to “generate more revenues related to social business”, is to “maximize the positive impact” of the business, “putting special focus on green ICT, accessibility ICT for handicapped & elderly people, and reducing the digital divide.”
3. Managing stakeholder engagement, through “the implementation of social programs (conducted mainly by Telefónica’s Foundation), developing social networks, and working with the stakeholders to build the digital agenda.”
But one of other reasons why some commentators tend to affirm that the terminology around CSR and Sustainability is jargon, is that, on top of a lack of clear definition, there’s still many ongoing discussions and debate around the concepts themselves. Which, in my opinion, is a very good thing.
For example, in this month’s Harvard Business Review, Michael E. Porter and Mark R. Kramer, in an article that explains “how to reinvent capitalism—and unleash a wave of innovation and growth by Creating Shared Value“, write that “creating shared value (csv) should supersede corporate social responsibility (csR) in guiding the investments of companies in their communities.‘
According tho them “CSR programs focus mostly on reputation and have only a limited connection to the business, making them hard to justify and maintain over the long run. In contrast, CSV is integral to a company’s profitability and competitive position. It leverages the unique resources and expertise of the company to create economic value by creating social value.”
The authors give an example that illustrates quite well their CSV approach: fair trade purchasing. ‘Fair trade aims to increase the proportion of revenue that goes to poor farmers by paying them higher prices for the same crops. Though this may be a noble sentiment, fair trade is mostly about redistribution rather than expanding the overall amount of value created. A shared value perspective, instead, focuses on improving growing techniques and strengthening the local cluster of supporting suppliers and other institutions in order to increase farmers’ efficiency, yields, product quality, and sustainability”.
Another example is what Alberto Andreu, Global Director of Reputation, CSR, and Sustainability at Telefónica calls “CSR 2.0”. ‘Doing new business with social impact” – he says – requires the creation of “an external ecosystem”. “For instance”, he explains, “to launch new ICT solutions for disabled people you must create an external network with governments, NGO’s, civil organizations, employee associations…”. That’s what he calls “CSR 2.0, because you can’t do these kind of business on your own, you need a complex ecosystem. CSR 2.0 is doing things with others, through a network.”
Alberto Andreu says that, in 2011, one of Telefónica‘s priorities is to “better link CSR to new business opportunities” and for that, “supporting social entrepreneurs to maximize the positive impact of our business on the community” will be key. The main focus areas for the company will be “green IT and the development of ICT solutions for handicapped & elderly people.”
This approach echoes what Porter and Kramer describe in their HBR article, when they write that shared value is not about personal values. Nor is it about “sharing” the value already created by firms—a redistribution approach. Instead, it is about expanding the total pool of economic and social value. In the Fair Trade example one of the clear benefits of a shared value approach is that “this leads to a bigger pie of revenue and profits that benefits both farmers and the companies that buy from them”.
Porter and Kramer also write that “companies must take the lead in bringing business and society back together“, emphasizing that shared value is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success. The solution, they say, lies in creating economic value in a way that also creates value for society by addressing its needs and challenges. “Businesses must reconnect company success with social progress.”
Alberto Andreu definitely sees the connection between company success and social progress when he describes the strategy of the company and the results so far. “CSR 2.0, he wrote in a paper for the Reputation Institute of London, in may 2010, “requires identifying new income sources with a positive impact on social development, new ways of reducing costs, as well as understanding the impact of responsible behaviour on margins and customer satisfaction.” Corporate Responsibility is not something new at Telefónica that released its first CR report in 2002 and when asked about the results of Telefónica’s effort in this domain, Alberto Andreu says that he’s particularly proud that his company is leading the DSJI for the second consecutive year but he also gives two examples of how CR activities effectively contribute to the company’s profitability:
1. One of the major impact of the company’s CR effort, he says, is that they “give the company a premium price on the market”, adding that “companies included in the DJSI have delivered a premiun of 0.48 pp on the markets vs those companies not included in DJSI, in a 8 years series.”
2. Furthermore, he explains that “some years ago, the company did an internal research to link their financial metrics to CSR and corporate reputation”. The conclusion they reached was that “the behavior of these financial indicators explained 11 percent of the variations produced in the corporate reputation”; “That is to say, he explains, “the variations that are produced in the client’s perceived reputation impact Telefonica’s financial results.”
According to Porter and Kramer, the new paradigm they describe, reconnecting company success with social progress, “will require leaders and managers to develop new skills and knowledge—such as a far deeper appreciation of societal needs, a greater understanding of the true bases of company productivity, and the ability to collaborate across profit/nonprofit boundaries.”
For Alberto Andreu, these new managers will also have to be “change managers” inside and outside their organization.
You can follow Alberto Andreu on Twitter at @aandreup