The top targets for corporate social responsibility (CSR) and sustainability programs are becoming more concentrated on critical global problems such as water supply and renewable energy. As a group, financial institutions are committing huge sums to climate change.
By Charles W. Thurston
At the same time, more players are building larger CSR programs, while industry-wide coalitions are seeking broader CSR cooperation and visibility.
Companies that commit to CSR clearly are being rewarded by green investors. In early 2014, the Green Transition Scoreboard (GTS) reported that with $5.3 trillion in private investments and commitments since 2007, the green economy is on track to reach $10 trillion in investments by 2020. The St. Augustine, Florida-based Scoreboard tracks clean tech, energy efficiency, green construction, green R&D, renewable energy, and water; among new technologies it follows are nanotech, genetic engineering, artificial life-forms and 3D printing.
Water a Top Global Focus
Among a handful of globally pursued central goals in sustainability, water has emerged of late as one of the most visible. CSR Guru Hazel Henderson, who created the Green Transition Scoreboard (GTS), has identified water at the primary focus of global CSR efforts this year. She reckons that $484 billion have been invested in water through CSR programs since 2007 when the Scoreboard began tracking such spending.
“Despite being the most important commodity of life on this planet, investment opportunities in water are often overlooked, and the bulk of water on the planet, being saline, is largely ignored. Even so, those paying attention are funding steady growth,” she writes in her 2014 GTS Plenty of Water report. Indeed, a host of global CSR leaders also are focusing in water, like Indonesia’s Adaro, in the mining sector, Mexico’s FEMSA, in the food and beverage sector, and HSBC in the financial sector.
Adaro, Indonesia’s leading coal mining company, has focused its CSR efforts around water to include sanitation, health, nutrition, education and alternative energy, according to Okty Damayanti, the chairperson of the Adaro Foundation, in Jakarta. “We always look for holistic solutions,” says Damayanti. Adaro has developed its T-300 WTP water purification plant to convert 72 cubic meters per hour of mine process water into potable water for villages around its operations.
So far, 15 kilometers of water pipeline have been laid, and a fleet of water tank trucks serve areas that are too geographically challenging for pipelines thus far, benefiting close to 7,000 households. Expansion plans to reach 100 percent of the mining communities are in the works. ”Our vision and ultimate goal is to leave a legacy for the local community of a better life for the next generation, one that is independent, sustainable and wealthier,” she says.
FEMSA, too, is centrally targeting water in its CSR program, and has spread its work to involve some notable partners, notes Videl Garza, the director of FEMSA Foundation, in Monterrey. The company is creating a network of local water development funds across Latin America, in partnership with the Inter-American Development Bank, the Nature Conservancy and Instituto Tecnológico de Monterrey. They established the Water Center for Latin America and the Caribbean, a research institution, now serving 12 water funds in the region, with another 15 under development.
One such fund, the Monterrey Metropolitan Water Fund (FAMM) is a multi-sector organization that aims to preserve the San Juan River Basin which serves four million people in Monterrey. FAMM has united more than 50 different organizations – companies, governments, universities and non-government organizations, including Femsa’s Cuauhtémoc Moctezuma beer unit, in Monterrey—to reforest 1,300 hectares of forest and shrub in the watershed. The project won the 2014 Water Stewardship award at the Global Water Summit in Paris, France, for their water balancing strategy in the State of Nuevo Leon.
With a similar view to broad geographic impact, HSBC in 2012 launched its Water Program as “a five-year, $100 million partnership with three global NGOs that rank among the world’s most-respected environmental and development organizations,” the bank’s latest sustainability report notes. “The partnership between HSBC, Earthwatch, WaterAid and WWF approaches water challenges from important angles: scientific research, safe water and sanitation and freshwater stewardship,” the report explains.
Simultaneously pursuing a local approach to funding water programs, HSBC also has earmarked $35 million for charities that operate water projects. By the end of 2013, $15.5 million had been allocated to 33 projects in 19 countries including Sri Lanka, Malta, India, and Brazil.
HSBC’s goal by 2016 is to ensure access to safe water for 1.1 million people and sanitation for 1.9 million in Bangladesh, India, Nepal, Pakistan, Ghana and Nigeria. Thus far, HSBC’s support of WaterAid has brought clean water and sanitation to half a million people. Coupled with that aid, the bank has brought hygiene education into 1,500 schools in developing countries.
Basic corporate water use reduction is another way to help preserve water—an urgent priority for many companies. Lockheed Martin’s Sustainability Management Plan has 41 measures to gauge performance through 2015 across six core sustainability issues. One goal is to “achieve 25 percent reductions in energy and water use,” this year’s CSR report says.
Renewable Energy on a Breakout Path
Among major corporations embracing renewable energy, L’Oréal has invested in a series of solar installations at U.S. factories and warehouses that place it among the top 10 U.S. corporate solar hosts, according to Alexandra Palt, the director of CSR & Sustainability at the company, in Paris. “We installed four new solar energy systems at four of our facilities in New Jersey in 2012: one 1,303 kilowatts-peak (kWp) unit on the roof of the Research & Innovation department in Clark; a 761 kWp second phase system at the Franklin factory; an 851 kWp first phase system on the roof of the Cranbury distribution center; and an enormous 600,000 square foot system on the roof of the Monmouth Junction distribution center,” she reports.
The corresponding impact of such installations on global warming is notable. “Our Piscataway, New Jersey manufacturing facility will soon have reduced its carbon dioxide emissions by 60 percent through the installation of LED lighting and solar panels on the site’s roofs. At our Franklin, New Jersey facility, the electrical consumption is lower than that of other facilities, with solar panels generating 890,000 kWh, corresponding to a reduction of 200 tons of carbon dioxide in 2012,” Palt adds.
The Solar Energy Industry Association, based in Washington, reports that, “In an increasingly competitive business landscape, some of the most well-run and efficient companies are turning to solar energy to stay ahead. From large corporations such as Wal-Mart, Costco, Apple and IKEA, to small, local companies, U.S. businesses are making significant investments in solar to cut energy costs.” SEIA continues, “Solar allows businesses of all sizes and in a range of industries to lower their energy expenditures, improve their bottom line and gain a competitive advantage. As of mid-2013, cumulative U.S. commercial deployment of solar totaled 3,380 MW at more than 32,800 facilities throughout the country, an increase of more than 40 percent over 2012.” SEIA calculates that of that total, “the 25 companies with the highest total solar capacity as of August 2013 have deployed more than 445 MW at more than 950 different facilities.”
R&D in New Materials Saves Resources
The use of basic science and research and development also can provide a game-changing way that the world approaches the use of a non-renewable resource. In material sciences, for example, Nike is working with NASA, the U.S. State Department and U.S. AID to create new, more-sustainable textile materials. Nike also recently opened a “water free dyeing facility featuring high-tech equipment to eliminate the use of water and process chemicals from fabric dyeing at its Taiwanese contract manufacturer Far Eastern New Century Corp.,” Nike CEO Mark Parker told his investor meeting in December.
On a much large scale, Lockheed Martin is developing lightweight nanostructures that are likely to change the way that welding and basic manufacturing are done. “We are pursuing 3D printing, advanced design-for-manufacture, and carbon nanostructures as well as a host of other innovations that together hold out the promise of near-zero rework, waste and scrap,” says Leo Mackay, the vice president of ethics & sustainability at Lockheed Martin, in Bethesda, Maryland. “The leading edge of science can bring a lot operational efficiency and resource efficiency, so a lot is going on there. At Lockheed Martin we have a fulsome approach to sustainability,” he says.
Encouraging Suppliers to Improve the Chain
Once corporations have honed their internal CSR programs, there is a more outward focus on supply chains. This multiplies the impact of the initial host program. Tracking supply chains is more difficult for some industries than others, but the food industry is so highly visible that many minimal best practices already are well defined in national regulations.
More remains to be done voluntarily before new regulations can take hold, however. “There is no industrial category that is more intimate with its customers than food, so people are paying close attention to the relationship between the food they eat and their values,” says Matthew Prescott, the food policy director for the U.S. Humane Society, in New Orleans. One recent campaign by the Society has been on living conditions for pigs raised for meat. “More than 60 major food retailers have used their position between the producer and the consumer to change production level practices, and the pork industry has responded,” he says.
One fast food chain that has fully embraced CSR in its corporate culture is Chipotle Mexican Grill. The company buys its pork from organic leader Niman Farms, sources plant ingredients through fair trade organizations and builds LEED-certified restaurants. “Not many fast food companies do things the way we do,” says Chris Arnold, head of communications for Chipotle, in Denver.
General Mills also has committed to sustainably source 100 percent of its 10 priority ingredients by 2020, which represents 50 percent of its total raw material purchases.
In July, General Mills also joined the Business for Innovative Climate & Energy Policy (Bicep) to advocate for innovative climate and clean energy policies. Bicep is a program directed by Ceres, a Boston-based an advocacy for sustainability leadership, which also directs the Investor Network on Climate Risk (INCR), a network of over 100 institutional investors with collective assets totaling more than $13 trillion. Upon joining Bicep, Ken Powell, General Mills Chairman and CEO said, “General Mills has long recognized the need to mitigate the risks that climate change presents to our planet, our business and each one of us. Science-based evidence underscores the urgency to take action and form effective and efficient climate and energy policies.”
Other industries with intimate relationships with their consumers have also helped lead the way for their own supply chains and for others. L’Oréal in 2013 launched its forum program, “Reimagining consumption: Sustainability as a desirable choice for all.” In partnership with five international organizations recognized for CSR work—BSR, Forum for the Future, Futerra, Sustainable Brands and The World Business Council for Sustainable Development—L’Oréal brought together more than 250 experts to share the current best practices around the world.
“By 2020, we will use a product assessment tool to evaluate the environmental and social profile of 100 percent of new products, and all L’Oréal brands will assess where they have the biggest environmental and social impact and make commitments to improve their footprint,” says L’Oréal’s CSR director Alexandra Palt. “In 2013, we conducted 800 suppliers’ audits in 45 countries,” she reports. “And in 2013, more than 20 fair trade sourced raw materials were included in 10 percent of the products manufactured; more than 20,000 people benefited from fair trade sources raw materials purchases,” she says.
In the aerospace industry, Lockheed Martin is “moving forward with sustainability life-cycle assessments along a number of parameters over the entire product life cycle to affect a range of impacts and build in affordability and efficiency,” says Mackay. “I like to think that this industry, and all industries, will improve sustainability over time. It would be a delight if our close peers and partners would engage us in competition—that would be wonderful,” says Mackay. “There is already a lot of cooperation in ethics, and I think that behavior could be mirrored in other areas,” he adds.
As corporate CSR programs bring more awareness of customer needs and supply chain practices, greater opportunities are bound to arise. “One thing we have found is that not only does sustainability affect us procedurally, the issues presented by those international markets, and the macro concerns of planetary sustainability provide unique opportunities,” explains Mackay. “For example, in its quest for cleaner energy, China is building scores of nuclear power plants in the coming decade, so we are partnering with China to provide commercial nuclear control systems for the reactors they are building,” he says.
In a similar way, Lockheed found that developing a cyber security capability in-house—the trademarked Cyber Kill Chain—turned out to be one of the company’s greatest assets in being an innovator and a leading supplier in that market. “If you look at our core issue areas, cyber security is the best example of a situation where our concern for the sustainability of the company, for long term data integrity and operations, led to our expertise in the pursuit and to an ability to offer it to a host of customers,” says Mackay.
The changes in sustainability that stakeholders may demand of a corporation can be very positive over the long run, if initially very costly. “The effort to be sustainable creates what I like to call a ‘serendipitous circle’: measures that increase efficiency and lower our total costs make us a more robust entity; increase our standing as a global corporate citizen; and engage our employees and the communities in which we work and live. There is just no downside,” says Mackay. “Sustainability is a two-sided coin, for stakeholders it can mean the ways we run the company and conduct ourselves, but those same concerns in the world can create customer behavior resulting in robust market opportunities,” he adds.
Influencing Institutional Investors
Pressure is rising on corporations not only to develop transparent and measurable CSR programs, but also to modify the basic way investments are made. “In terms of CSR among financial companies, we are in a radically different world than we were in 10 years ago. On a scale of one to 100 we may only be at 29 today, but we used to be at four,” says Mindy Lubber, president and CEO of Ceres, in Boston.
“When Bank of America says it will put $50 billion into climate change and Citi has a $50 billion clean technology goal, these are real numbers,” says Lubber. “But the bottom line is we aren’t seeing enough. It may take five years for financial companies to integrate CSR into their product lines to meet their current goals, but at least these goals now exist,” she says.
But how much sustainability is enough? An oft-repeated criticism by industry consultants of corporate CSR efforts is that following an initial level of achievement, or the formation of a permanent CSR board committee or the launching of a pilot project or two, a company many slow down its new efforts. They pause to ask, “Are we there yet?” “The major financial institutions all have branded CSR programs, but many are sitting on the fence now, as if they have done enough,” assesses John Hodges, the director of financial services at CSR consultancy BSR, in New York.
In terms of CSR programs, “Financial firms ask, ‘Is this end of the beginning or the beginning of the end?’” says Hodges. “The challenge is whether their programs are scalable and whether they want to break from the pack. The question now is whether a company wants to really stand out with its program,” he says.
Others agree that the path is a long one, although the view becomes clearer throughout the ascent. “I don’t think you really reach a level of sustainability like you reach Nirvana; rather it’s a spiral of continuous improvement. That’s the way we approach it,” says Lockheed Martin’s Mackay.
Investors Dictate a Massive Shift in Spending
With such singular, visible global goals rising from CSR, and with as many tools as are now at hand, investor pressure for more and better sustainability is heating up very rapidly.
“A lot of private equity firms are talking more openly now about influencing sustainability in their portfolio companies, and how create value,” says BSR’s Hodges. Others agree. “When the Society is working with investment firms it is in our charter to move the needle on animal protection issues, and hopefully banks and other financial institutions do well by doing good. We look to see where there are intersections between making money and humane policy, and those are the areas where we focus,” says the U. S. Humane Society’s Prescott.
Ceres recommends investing at least 10 percent of institutional portfolios directly in companies driving the global green transition. Ceres is leading the Clean Trillion campaign to invest $36 trillion in clean energy, in addition to existing investments, at an average rate of $1 trillion per year for the next 36 years. Despite the colossal size of that number, Lubber is bullish: “I think we will double green investments to $500 billion by 2020, and continue doubling thereafter.”