Is the issue of trust ushering in a wave of creative destruction? Are we about to witness some of our most established companies, unable to respond to a new era of transparency, wither and die - to be replaced by new businesses with 'good' at their core?
And what of Millennials? Are they, their social networks and willingness to act quickly and collectively, the driving force behind trust moving so firmly up the corporate agenda?
Talks from three outstanding speakers at our February Forum addressed these questions and more.
Vincent de Rivaz (CEO, EDF Energy) is a leading CEO who is grappling with rebuilding trust in a sector where trust has evaporated. There were parallels for those working in utilities, banks and media companies.
Huw Davies (Head of Personal Banking, Triodos) shared how trust and transparency can create competitive advantage. If you don't know Triodos, have a look - are they part of a new generation of trust-centric businesses that threatens the incumbents?
Angela Jhanji (One Young World) explained why Generation Y have higher expectations from business, and how social media is generating conversations between companies and society, replacing corporate monologues.
The link between business and society continues to tighten, as Google, Starbucks and Amazon learned recently. Is your company ready?
How should organisations assesses their reputational supply chain risks? How should they draw up the appropriate metrics, both environmental and social, to determine risk levels and should they be willing to deselect on this basis?
1) How far should corporations go to operate an efficient supply chain?
• As a lot of the work is outsourced, regulating the companies you outsource work to can be difficult because of limited resources. This can be exacerbated by the inherently secretive nature of companies involved.
• Imperfect information is an issue. It is necessary to question the reliability and validity of the data companies obtain.
• Gaining information from primary suppliers can be obtained but getting information from the suppliers of your suppliers can be more problematic. This raises the question..
2) How far down the supply chain should we take responsibility for?
• People who do the work for a corporation have been diluted 5 times down the chain.
• Quality assurance becomes less valuable and reliable.
• The challenge is to disseminate high standards throughout the supply chain.
3) If customers are not discerning of a companies ‘greenness’ should it still be in their strategy?
• Important to consider other cohorts other than just customers.
• NGO’s often lobby companies for greater transparency and greater environmental performance.
• Top down leadership should drive companies green credentials.
4) Company collaboration?
• Mutual sharing of information between companies by giving ratings on each other’s supply chain.
• Level of ranking to score people on ethics, environmental performance, health and safety.
• Collaboration for supply chain maximization.
• However, sharing data in the same platforms needs governance.
• Losing competitive advantage is an issue.
• Could the governance be facilitated by NGO’s?
5) Who do we trust- NGO’s or big corporations?
• Trust corporates the most. Big business has made huge steps in the last few years
• NGO’s lack transparency.
• Challenge for auditor models is to develop a less confrontational approach and have a larger focus on improvement. Often the auditors are constrained-can’t give negative feedback because you are their client.
6) Going forward?
• Partner with technology companies to identify reputational risk. Arab spring used that as a tool to identity potential risk early on.
• Pharmaceutical companies are already identifying reputational risk using similar techniques.
How should companies be preparing for mandatory carbon reporting? What will you have to report and when, and is it possible to turn it into a competitive advantage?
Because the legislation has not yet been published in its final form the group was not able to arrive at many definitive answers. Instead, much of this lively conversation took the form of a collective diagnostic session, with participants sharing questions and answers about the impending legislation and trying jointly to anticipate what will happen next.
Common questions focused on the following themes:
- Reporting boundaries (financial versus operational control)
- Reporting timeframes
- Alignment of reporting year with financial year
- Use of benchmarks and intensity ratios
- Assurance requirements and nature of government enforcement
- Treatment of JVs and other partially owned subsidiaries
- Government’s intentions for the period after the 2016 review
Participants felt that the guidance for the CRC, while burdensome, left significantly less room for ambiguity than does the Mandatory GHG Reporting guidance. The government’s softer “report and explain” approach seems designed to make it easier for companies to comply without falling foul of the law, but will make it more difficult for external stakeholders to analyse the data and compare companies on an apples to apples basis.
Levels of engagement within companies vary. In some, company directors are only vaguely aware of the legislation – in the past only the team responsible for data collection has needed to engage with carbon reporting. Participants expect director involvement to increase as the reporting deadlines draw nearer.
Many of the companies represented in the discussion already report their emissions via the Dow Jones Sustainability Index, CDP, CRC and other schemes. There was general agreement that firms that already collect most of their carbon footprint data will find it easier to comply with the legislation. Participants believed there would be positive impacts from the legislation. For starters, the global Scope 1 & 2 emissions of listed companies is slightly larger than the UK’s total footprint. In addition to cut carbon, making these emissions sources visible within companies can lead to near term energy and cost savings, as demonstrated by the CRC.
How can companies use social media to build trust with society? Is there a need to shift from trying to control the message to having an open and continuous dialogue? Which companies are good at it?
The table was in agreement that there is a need to move to a more open, continuous dialogue using social media. Some concern was expressed around whether social media necessarily automatically leads to an organisation actually being more transparent.
• The importance of audience. Not everyone will be au fait with social media – need to recognise you can’t reach everyone this way.
• Can social media constrain innovation? Concern was raised about the potential for greater transparency driven by social media to stifle radical action with companies playing it safe for fear of the reaction.
• Resourcing social media. Internal structures and resourcing as well as legal issues can be a massive challenge and should not be underestimated when shifting from a ‘broadcast’ to a ‘dialogue’ mode. Social media user expectations are high for a prompt response
• Who should the message come from? : Leaders are usually the least trusted. The employees on the other hand, are the ones who need to communicate the message (issues of intimacy and engagement + target audience needs to be identified before communicating the message)
• Complex issues: There is lack of space to have complex conversations (maximum of 140 characters in twitter)thus conversations through social media need to exploit different platforms
Video. There is a shift towards the Millennial generation searching first on YouTube for video rather than on Google for text.
What is the internet of things? Who should be aware of it within an organisation, and how can it be factored into a business strategy?
How can organisations turn the growing issue of trust from threat into an opportunity? You might consider issues such as transparency, honesty over difficult issues, and open conversation v's trying to control the message.
What does an energy company that is a positive contributor to society look like? You might consider issues such as transparency, renewable generation and improving client energy efficiency. And how should they communicate this with investors?
Roundtable participants stated that they would expect energy companies to make a positive contribution to communities through: excellent customer care, provision of affordable energy, employment creation, transparent reporting on activity and billing, and support for community renewables generation and domestic energy efficiency. Customer engagement and excellent customer care is crucial in the energy sector, as the quality of energy is indistinguishable from one supplier to the next. The table felt strongly that this shouldn’t have needed to be mentioned.
Giving more information in bills may help to explain price changes and the positive contributions made by energy companies– for example, transmission and investment in infrastructure make up a significant portion of the typical bill.
Behavioural change in end-users was identified as a key factor in further adoption of energy efficiency measures. Energy companies have a role to play in helping the domestic sector reduce their demand through energy efficiency. Participants indicated that although energy companies have a critical role to play, the government must lead energy policy and demonstrate true leadership. Long term policy certainty was raised as a challenge to this.
Discussion Summary Points
• Energy quality is the same regardless of supplier – affordability is at the top of the list. Difficult to differentiate from competitors except for customer engagement, e.g. call centre wait times.
• There is a disconnect between the positive contribution made at and around generation sites e.g. Sellafield input to local community, through the creation of jobs in local communities, and the benefit received by energy end-users.
• A large proportion of the typical energy bill is non-energy cost – this includes transmission and distribution costs, as well as investment in future infrastructure. A conflict exists between maintaining low prices and investment for the future. This is not clear to the tax payer or clearly identified in bills.
• Incentives may be misaligned for reducing energy use – per unit prices currently seem to decrease with increasing consumption bands.
• Some energy suppliers recognise the need to fund energy efficiency without government intervention, beyond the Green Deal, but face apathy from clients, particularly businesses. This is due to up front cost, despite a payback time of 2-3 years for some measures.
• Low-carbon technologies are core to energy companies – but feed-in-tariffs felt to stifle innovation by limiting the profitability and size of the market.
• Behavioural change is difficult – for example, offers of free insulation in homes are regularly refused.
Examples of positive contribution to society
• EDF’s Olympics success demonstrated the importance of core competencies and customer engagement.
• Amazon listed as a good example of customer service – but this can be due to the sector – most people contact energy supplier if there’s a problem.
• Energy companies working with municipal services to identify vulnerable residents, by monitoring gas usage during cold periods.
Solutions & Opportunities
• Strength and direction of energy and carbon policy should be decoupled from government and political party five-year terms and re-election priorities. Organisations should lobby hard for a cross-parliament consensus.
• British Gas’ Green Street program provides an example of using information provision and competition between next door neighbours to deliver behavioural change.
• Industry, businesses and consumers must respond to initiatives, be less risk-averse and less apathetic.
• Energy companies can offer better breakdowns in bills – communicating the reason for price changes and any positive contributions to society. The information provided should be tailored to the consumer – lots of data is not necessarily ideal.
Let’s assume that we are not able to mitigate significant climate change. How can companies use their knowledge of sustainability to outcompete their competitors in a resource-constrained world?
The table was asked to discuss how companies can use their knowledge of sustainability to outcompete their competitors in a resource-constrained world. Trust, level of knowledge, use of social media and perception of cost and value were issues that recurred throughout the discussion. There was a suggestion that resource efficiency should be calculated as anything that can increase competitive advantage and reduce costs, to which the counterpoint was raised that an individual business cutting costs does not necessarily reduce the costs for society. There was much discussion over the issue of whether customers were willing to pay a greater price for quality and increased product life-time. There was willingness to produce longer-lifetime products but a shared concern over whether customers perceive value mainly through a lower-priced product. There was also discussion of how much responsibility a company can take through methods such as choice-editing (e.g. only offering Fair Trade bananas). More broadly it was agreed that using methods to tackle resource efficiency would help businesses reduce costs and reduce risks posed to their supply chain by factors such as climate change.
• Inertia, friction or resistance to change within an organisation
• The issue of perfect knowledge
• There was a consensus on the difficulty of building customer trust
• There was some doubt over whether customers understand that paying a greater price up front for a product may in fact be cheaper over the lifetime of the product
• A business cutting costs does not necessarily reduce cost to society
• Resource efficiency can translate to reduced costs and is therefore an opportunity
• Less material- and energy-intensive business models such as leasing could provide a way for a company to take responsibility for a product at end-of-life
• A consensus was formed on the importance of improved, consistent communication to customers and positive brand perception, particularly facilitated through social media
• Assistance to knowledge such as energy efficiency rating schemes
• Rolls Royce moving from a product to service model was identified as an example of de-materialising a product
• Sainsbury’s have a target of reducing own-label packaging which appears to have been effective in reducing waste
• Improving resource efficiency may improve resilience of a business such as in cases where a business may be particularly sensitive to fluctuations in a commodity price e.g. cotton
• Improved office sharing and lighting efficiency offered the opportunity to spend savings on other areas such as R&D
Is the Millennial generation going to demand a greater degree of accountability from organisation and pressure change in a way that previous generations have not? We ask this table to debate the issue and take a vote.
• Do millennials demand greater transparency? 14/14 voted yes.
• Will they use this to exert pressure on organisations in relation to sustainability? 6/14 voted yes.
Millennials on sustainability vs previous generations
• There are bubbles of interest in sustainability amongst millennials but it is not the overall picture.
• It may not be justified to ask so much of the millennials in terms of purchasing decisions – they are often low waged.
• Though millennials may start off with strong values around sustainability, how long do those last in a corporate environment? The view may affect their employability: an interest in sustainability demonstrates an interest in the world around us.
• Perhaps it is not really a generational difference but just people with particular interests and values.
• People do want to care but they shop around more now for political parties, committees etc.
• The human perspective is evolving but is not very different in millennials.
Sources of information
• Millennials demand accountability and greater transparency from companies.
• Millennials trust non corporation controlled content more than corporation controlled content. People are using unofficial sources to make decisions. But is the information accurate? Is it material? Most people get information via friends and the news, they won’t go and look at corporate responsibility strategies – the language and acronyms are barriers. Is Primark bad and how do consumers know? TV documentaries 2006/7.
• The current inviting of companies to show everything indicates that distrust is already present.
• Brands in the public sphere, if slow adopters, may find social media difficult – the rules change every day.
• Do we trust sources such as Vincent (EDF) or science institutes?
• Business needs to look for different ways of communicating. Consumers are confused. ‘Big data’ will give consumers power – it gives more transparency and enables consumers to hold companies to account. The government should introduce frameworks.
Choosing companies and loyalty
• GenY don’t have as much company loyalty as previous generations and have less of a long-term view.
• Brands are now used in someone’s identity, such as liking on facebook.
• Brands such as Nike have turned themselves around following poor publicity but GenY fails to understand that brand loyalty can’t be regained overnight.
• Apple and Nike produce good quality products, Primark produces poor quality which indicates a lack of sustainability.
• Chance to generate competition between supermarkets as they provide technology and data on products.
• Businesses are looking for loyalty, consumers are looking for price, quality and convenience and an emotional bond – can sustainability be used as an edge for loyalty?
• Sustainability is not a trade-off – good quality is something people want to buy but there is a cost issue and sustainable products are currently seen as ‘premium’.
• Brand management and R&D should drive prices down and drive demand. Currently there is no pull from the consumer because sustainability doesn’t engage.
• Nobody wants to buy CSR although they may want to penalise very bad companies. Sustainability may be bought for image, e.g. Prius bought for identity not reduced gas miles.
• Also important to consider non-UK millennials, 61% in Asia. They don’t have learned behaviours so this is an opportunity for different marketing to them.
• There is a distinction between stuff people need like food vs stuff people don’t need. Are millennials going to consume less and better (quality vs quantity?)
o The power of the Twitter feed is that more information is provided transparently into the market.
o Did the employee who tweeted do anything wrong? Will it affect her ability to get a job in future in a corporate environment? Was she acting out of revenge rather than transparency
o There is value in whistleblowers but is it ok to use the corporate account for this - did HMV do anything illegal? It is important to think of the perspective of the person engaging.
o There is a two way trust between companies and employees.
Rebuilding trust - how can organisations in sectors where public confidence has collapsed rebuild confidence? This table is particularly aimed at people in the banking, utility, mining and media sectors
To introduce the topic the question was posed: What is the one thing you would do to rebuild trust if you were the Chairman or CEO of a financial services company? Key themes arising were:
• Cultural change – a core ethics and values framework is imperative, and must be applied and delivered throughout the business. Not every deal that is legal and profitable should be pursued e.g. in the process of assessing potential borrowers a bank should incorporate their energy usage, ethics etc. into the traditional cost/benefit assessment model.
• Start with leadership – take it personally and lead from the top. Walk the talk. Set expectations for behaviours, make these expectations public and ensure they are delivered on. Starting with yourself. Tailor ethics, systems and environment to the business.
• Treat customers differently: e.g. Sharing with customers information companies collect about them to help them make more informed choices such as energy use data and projected use; e.g. energy companies - pay interest when direct debit payments lead to over-payment of bills.
- Corporates giving lip service to ‘false values’ that are agreed by the leadership but not disseminated throughout the business (e.g. saying they listen to their customers but not acting on it). The word ‘trust’ trips off the tongue, but companies need to walk the walk and not just talk!
- Lack of diversity in the boardroom is an obstacle to change – this can be self-perpetuating with like attracting like.
- Boards not being clear on how to prioritise ethics and values compared with the bottom line. This can come from a lack of clarity of what purpose the business serves and a core values framework – these need to be defined.
- One person’s ethics/values may not be the same as another’s.
- A perception that the board exists purely for compliance, and this leading to boardrooms that lack the competency to deliver an ethical strategy.
- UK is particularly entrenched in hierarchy that runs through the business, creating a barrier for citizen participation.
- Lack of accountability e.g. BP Deepwater Horizon, horse meat scandal etc.
- Defining a fundamental ethical framework to guide the business.
- Define the balance between the business’ ethics, profits, purpose and values to ensure a common understanding to refer back to when making tough decisions.
- Social values can bring profitability, for example increasing employee satisfaction has been shown to increase productivity and therefore profitability, as well as the co-benefit of an improved reputation. It has also been shown to reduce capital raising costs.
- Walk the walk – persisting over the years with ethical actions will earn trust from the bottom up (it cannot be bestowed from the top down!).
- Ethical competency in the boardroom gives a company the ability to make moral decisions for all stakeholders.
- View customers as citizens with values, not merely consumers e.g. energy companies could look at encouraging reduction in customers’ demand rather than seeking to find new ways to meet ever exceeding demand.
- Seek to ‘surprise your customer’ by going beyond compliance – being driven by innovation and not risk of penalties.
- BP Deep Horizon disaster – BP was not fulfilling its responsibilities for social issues, contractors etc. and it has cost them dearly. There was a lack of accountability, over complexity of contracts, crisis of leadership and consequently a crisis of trust.
- UK horsemeat scandal – accountability was pushed down the supply chain from the supermarket to the supplier in Ireland, to a source in Poland. Without accountability there can be no trust.
- Chartered Director Initiative in the UK (and overseas). Approx. 1,000 Directors have completed this in the UK, and this may go towards training Directors re. ethics etc.
- Citizen supervisory roles in Germany aids with accountability, ethics, and building trust. This example could be copied in the UK and globally.
- EDF shareholder advisory panel (composed of independent thought leaders) is held once quarterly with the CEO, where strategies are genuinely challenged, and an unbiased view is obtained. This builds ethics, values and trust outside the boardroom.
How can companies use transparency over their use of nature to build trust with various stakeholder groups? Are pioneers such as Puma, with their EP&L's, seeing benefits? Does this transparency deliver organisational behaviour change?
Questions raised by the table:
• How are ecosystem services measured for different companies?
• How are ecosystem services measured in non-monetary terms?
• What benefits are PUMA seeing from their EP&L – internally and externally?
• Is it possible to scale-up what Triodos do?
• Greater risk awareness over the last four-years due to public pressure and exposure over natural capital usage
• Companies are beginning to refuse to purchase from companies that do not meet their ethical standards (socially and environmentally) to protect reputation
• Valuing the environment has promoted the use of a common language and is driving innovation and better performance. Its not a the ideal system but is the only one that is gaining widespread acceptance
• PUMA’s EP&L has facilitated choice and enabled informed and responsible change
• It is currently quite straightforward for companies to ignore natural capital costs
• Not everything in the environment has a monetary value. There is a need to communicate this value in non-monetary terms in a way that enables comparison and benchmarking across all sectors
• More focus from corporates than in the investor community at the moment. The analysts need to start asking addressing natural capital issues rather than the investors
• Investors want to see corporate returns before full buy-in will occur
• We need more of a structured framework to guide investors
• Need for a consistent (regulatory) framework for reporting on what are seen as CSR issues
• Standards help inform better decision making and increase transparency of suppliers
• Banks are trying to stay out of the spotlight to protect reputation and maintain the status quo
• “Money talks” attitude means if it doesn’t have a monetary value, decision makers won’t care
• Need to improve language and remove the “tree hugger” concept/message and start to make a more business centric proposition
• Establishing a robust methodology that can be adopted by all
Should companies be engaging in mitigating fuel poverty? Is there an opportunity for companies, from energy companies to mainstream corporates, to build trust through tackling one of the major social challenges of today?
1) Not only should we, but can we play a role in reducing fuel poverty?
- reducing energy demand is key but may be contradictory with companies’ interests
- may be seen as some as an unnecessary financial risk
2) Can companies, especially those outside of the energy sector, do anything?
- companies can reduce their own energy use to help reduce prices
3) Should it be something that is mandatory or can we expect corporate to go the extra mile?
- need corporate leadership and public pressure in addition to regulation
- corporate innovate new ways of achieving the goal & often set the benchmark
- often end up with laggards if there is no regulation
4) Does regulation play a role?
- implementation of large-scale projects, infrastructural changes & where a monopoly dominates the market
1) Do we (as a group) really know what it is like to live in fuel poverty?
- affects a certain demographic: aging & ill
2) Difficult to solve
- mandatory measures in the energy sector have not solved the issue
2) Inertia: infrastructural & bureaucratic
- 60% of housing stock will still be there in 2050
- Local Authorities are slow to act, perhaps because of resource, power and monetary constraints
2) Behaviour of consumers
- often do not even buy the ‘ethically-labelled’ goods
- perhaps energy is too cheap & people feel energy secure
- disconnect between using electricity and the resultant bill
- even free initiatives have failed due to the ‘hassle factor’
- expectation that the companies will do something about it
4) Trust in the private sector
- Do not trust private companies (with the exception of British Gas!) – difficult for the Green Deal
1) Role of companies
- legislative risk posed to companies - need to be proactive
- in energy companies’ interest to help customers be in a position to pay bills
- facilities often produce waste heat which could in theory be used
- initiatives to remove hassle factor e.g. help clear lofts for insulation installation
- issuing of SMART meters
3) Community ownership
- other financing possibilities e.g. social bonds at a local level given social cost of resultant health problems
- helps people to feel invested
4) Good media stories
- lack of good news stories of the positive work being done in this field
- conditions attached to planning permission
- role in establishing networks such as for waste heat
- help trust issues
How should companies measure their sustainability risk, both social and environmental? How can they benchmark their risks against other organisations, and how should they present this to their management team?
After the introductions at the table we began by discussing how sustainability risk, both social and environmental, can be defined. Without a clear definition, many participants felt that it would be a challenge to measure these potential impacts, particularly in the case of ethics. The need to include the whole supply chain in the calculations was raised and agreed upon. We then moved onto to discussing the indicators, e.g. KPI, KRI, that are used to measure performance in this space. It was highlighted that for risks coming out of “left-field” these indicators are often inadequate, and furthermore, if one wishes to discount cash flows based upon risks these present a significant challenge. Discounting cash flows based on risks, including environmental and social, is one approach that was discussed but again the methodology of how to weight these risks and when to include them demands further development of this methodology.
The group then moved onto discussing how these risks should be communicated, both internally and externally. With regards to communicating these issues to the board, often a third-party may be involved but this can vary by circumstance and may not be appropriate on certain occasions. The table felt very strongly that boards like this information to be communicated simply. Namely, through the use of graphs and dashboards with detail retained at the lower levels. Owing to the fact that boards allocate capital within organisations it was felt that often the board have a good grasp of risks and communication was the main challenge.
The table then moved onto discussing the role of leadership within an organisation in terms of encouraging a workforce to bring sustainability upwards. Often change has occurred owing to external forces rather than internal push in many organisations and the table felt that changing this could yield positive effects. Positive steps mentioned include if the CEO has a clear mission statement, if they set up a sustainability department, the encouragement of HR to hire and target staff who are clued into these issues and, crucially, if the CEO gives permission for staff to act in certain ways (which take account of sustainability risk).
Finally, the group concluded by discussing the importance of benchmarking and the appropriate steps to do this. Communication between competitors both in-sector and more broadly, can be positive, especially in cases where regulation doesn't currently exist. The motivation behind benchmarking was questioned with some participants worrying that it could be used to simply ensure that organisations aren't the worst in class at the expense of aspiring to lead in these challenges.
• An organisation with a proactive CFO focused on these issues will encourage the development of an internal culture of action. (Example)
• Consider publishing real-time data to help with transparency and trust. An example could be how many $/hour are spent on energy within the organisation. (Example)
• Develop an internal vision within an organisation and then set targets ensuring that employees keep to these. This will ensure these issues become a regular part of any decision making. (Solution)
• Considering the possibility of not having a CSR department as a separate entity to encourage these ideas naturally throughout the organisation. (Solution)
• Ask simpler questions to avoid getting hung-up on the lack of a standardised reporting methodology. (Solution)
• Consider combined reporting techniques to ensure that investors and analysts take account of the figures. (Solution)
• Setting quantifiable targets within an organisation will enable the finance director and other management to keep a track of progress. (Solution)
• Develop a real-time reporting method that produces information which is actionable, encouraging management to use it. (Solution)
• There doesn't exist a clear set of guidelines across sectors and organisational type on how and when to report environmental/social costs. (Obstacle)
• Often this information has been produced and it simply isn't read by investors and other analysts. Be careful not to waste time on unread reporting. (Red Flag)
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